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The process of buying a house and arranging a mortgage can be both stressful and time-consuming.
Working with an independent financial adviser can help as receiving your mortgage offer promptly can be very important to you. An independent financial advisers task is to achieving this without compromising on the overriding need to ensure that it is exactly the right mortgage for you. That is why independent advisers take steps to understand your circumstances and review the entire market place before making any recommendations.
Whether you are buying a new home or looking for a better mortgage deal for your current property advisers use the latest online mortgage sourcing technology to help identify the most appropriate mortgage available from the many thousands on offer.
Residential Mortgage FAQs
A mortgage is the name given to a loan secured on property. It is usually used to buy the home although it is becoming more popular to consider a new mortgage where the property is already owned to access a more competitive mortgage product or to raise capital for other purposes such as school fees or business investment.
A mortgage is a long-term loan and has traditionally run for a fixed period typically 25 years. However most mortgages are flexible enough to allow for early repayment or if your circumstances dictate the term can be extended beyond the original loan period.
Mortgages were once the preserve of building societies and the high street banks however recently far more competition has entered the market and there is now a raft of lenders offering mortgage loans on residential property. This expansion in the number of lenders has lead to a vast array of different loan packages.
There are loan deals to suit most people's needs whether you are buying your first home a retirement cottage or perhaps an investment property.
How do Repayment Mortgages work?
Also known as Capital & Repayment mortgage you are guaranteed to repay your mortgage providing all repayments are maintained at the end of the mortgage term. You simply make the payments to the lender usually monthly and these consist of two elements paying a proportion of the mortgage capital and the interest on the loan.
During the early years most of the payment goes towards repaying the interest on the loan. Towards the end of the mortgage term a bigger portion of the payments are paying of the capital of the loan which gradually reduces until the mortgage is fully repaid
How do Interest Only Mortgages work?
With an interest-only mortgage you make regular payments normally monthly to the lender to pay the interest on the loan not the capital that has been borrowed. At the end of the mortgage term you will need repay the original capital borrowed minus any individual payments made To be able to repay the capital at the end of the mortgage term you should consider making payments into a suitable investment such as an endowment an ISA or a pension. Lenders may insist that you have a suitable plan in place which repays the loan at the end of the term.
There is an element of risk associated with interest-only mortgages. At the end of the mortgage term it is your responsibility to ensure the mortgage is repaid. Where the repayment vehicle is investment based - normally stock market linked this may not have grown to the necessary amount to pay off the mortgage which may leave you with a substantial shortfall to address. This shortfall may increase the length of the mortgage term. However there is a possibility that the investment may grow quicker than expected and provide you with an additional cash-lump-sum. We can organise for you to be contacted by an Independent Mortgage adviser who will review a wide range of investment vehicles that can be linked to an interest-only mortgage and fully discuss all the options that are available to you and all associated risks that are attached.
Combination of the two part repayment part interest only
Becoming more common place is a combination of the two methods of repaying your mortgage. You have one part of the mortgage calculated on a repayment basis where you pay the interest and part of the capital and with the interest only element simply pay the interest usually on a monthly basis. You must still ensure that you are able to repay the mortgage at the end of the term.
Other features of mortgages
Offset Mortgages With offset mortgage your bank and savings account sometimes both are linked to the balance of your mortgage. The accounts are generally held with the mortgage lender and the balances are calculated against the outstanding capital of the mortgage. Any interest is then paid on the remainder of the balances. So the more you have in your bank and savings account the less interest you pay on your mortgage. The less you have in your bank and savings account the more interest you pay on your mortgage.
Can be useful for those that are paying a higher rate of tax and for those that have savings which are earning little interest. Generally offsetting will only be worthwhile if you have a reasonable amount of savings in your current or savings account.
Current Account Mortgages These are similar to the Offset mortgage but only one account is used this being the current account. All you money is paid into the one account which is used for everything and the interest is calculated taking into account the difference between the loan and money paid into the account.
This type require discipline to ensure the loan is gradually repaid rather than increasing the mortgage therefore may not be suitable for those who find it difficult to budget effectively.
Flexible Mortgage offer a number of flexible features which allow you to change your mortgage payments to your lifestyle. You can make underpayment overpayments take payment holidays generally no longer than 6 months pay in lump sums - but you must have a strict form of financial discipline.
They can be useful for the self employed or those individuals that have a fluctuating income irregular or large bonuses. If you defer payment or take payment holidays the interest is still accrued during this time which could lead to higher payments in the longer term
Types of Mortgage Interest Deals
There are numerous interest rate products which can be attached to the mortgage and each has their own unique characteristics benefits and risks. An independent financial adviser can help you assess your own individual circumstances and can advise on the most appropriate route for you.
The most common forms are listed below.
Standard Variable Rate Your payments go up or down and move in line with the lenders rate at that time. These tend to move in line with the Bank of England base rate although sometimes there may be a delay in rates being passed to you. Your mortgage payments will go up or down in line with the interest rate movements. These rarely have any early repayment charges.
Fixed Rate Your payments are fixed for a specified period. These are generally up to 5 year periods although longer fixed rate periods are becoming more frequent. At the end of the specified fixed rate period the rate will usually revert back to the lenders standard variable rate at that time. This may cause your mortgage payments to go up or down depending on the market rates. Good if you need to budget for mortgage payments but if interest rates reduce your fixed rate will remain the same. Check that you can afford the mortgage payments should mortgage rates increase above the current fixed rate. Early repayment charges may apply should you repay the mortgage early or a certain period after the fixed rate deals ends commonly known as a lock-in.
Take care when the deal comes to and end and watch out for payment shock. When you finish your special deal the new interest rates may well increase and this could substantially increase your mortgage payments.
Capped A capped rate mortgage is very similar to a variable rate mortgage in that the rate can fluctuate. A major benefit to a capped rate is that the interest rate cannot exceed the capped rate to which the mortgage is set. For example if you have a capped rate of 5% and the interest falls to 4% you monthly payments will be reduced. On the other side if interest were to rise to 6% your payments will be capped at the 5%. Provides a guarantee that your mortgage will not rise above a certain limit but benefiting from any potential reductions. Usually the capped rate is higher than a fixed rate because the rate can change and these generally come with upfront charges. Early repayment charges may apply should you repay the mortgage early or a certain period after the capped rate deals ends.
Take care when the deal comes to and end and watch out for payment shock. When you finish your special deal the new interest rates may well increase and this could substantially increase your mortgage payments.
Discounted The Lender offers a discount on the Standard Variable Rate SVR for a specific period of time. For example the variable rate may be 5% with a discount of 1.5%. The initial rate would therefore be 3.5%. If the variable rate rose to say 6% then the rate payable would rise to 4.5%. As the discount is linked to the standard variable rate the borrowers payments will increase if rates rise - so there is no certainty in budgeting. However should rates decrease the borrower will benefit from lower payments. It is common to have up front charges such as arrangement/application fees attached. The lender is likely to apply some form of early repayment charge should you repay the mortgage early or a certain period after the discounted period ends commonly known as a lock-in.
Take care when the deal comes to and end and watch out for payment shock. When you finish your special deal the new interest rates may well increase and this could substantially increase your mortgage payments.
Tracker This is a type of variable rate which works in the same way as a standard variable rate. The rate is generally set at a percentage above the base rate say 1.5%. The rate you are charged tracks the Bank of England base rate whether this be down or up. If the base rate reduces by 1% your payment reduces. On the other hand if the base rate increases then your payments will increase. The rate of interest is commonly set below the Standard Variable Rate reducing the payment during the period of the tracker.
It is common to have up front charges such as arrangement/application fees attached. The lender is likely to apply some form of early repayment charge should you repay the mortgage early or a certain period after the tracker period ends commonly known as a lock-in.
Take care when the deal comes to and end and watch out for payment shock. When you finish your special deal the new interest rates may well increase and this could substantially increase your mortgage payments.
Cashback - The Lender as an incentive will offer a lump sum of cash once the mortgage has been taken out. The amount will vary from lender to lender and on the size of the mortgage. The amounts can range from a flat fee e.g. £200 to a percentage of the loan e.g. 3% of the loan. These can be attractive for those that require some capital however the lender is likely to apply some form of early repayment charge should you repay the mortgage early or a certain period after the cash back deals end commonly known as a lock-in sometimes this can be over a number of years so check carefully. Generally come with some upfront arrangement/application fees.
