Finding the right type
of mortgage and repayment
method for you is crucial.
This is an area where
independent financial
advice is essential.
Repayment
Mortgage
Each repayment contains
some capital and interest.
In the early years, the
monthly repayment is made
up almost entirely of
interest. There will be
a gradual reduction in
the amount of capital
owing. This mortgage is
guaranteed to be repaid
in full so long as you
make each repayment when
it is due.
Standard
variable rate mortgage
Lenders set a standard
variable mortgage rate
which will fluctuate in
line with the market conditions.
It can prove to be a suitable
option for those whose
immediate future is unplanned
and who may not wish to
commit to a product which
includes a tie in period
in the form of redemption
penalties. But can be
difficult to accurately
budget for your mortgage
payments.
Discounted variable
rate mortgage
Discounted variable rate
mortgages involve paying
a set amount below the
basic variable mortgage
rate for a certain number
of years.
After the discounted period
the rate will revert to
the standard variable
rate. There will usually
be a charge for early
repayment.
Fixed
rate mortgage
A fixed rate mortgage
allows you to fix your
monthly payments for a
specified period of time.
After the fixed rate term
has expired, the interest
rate will revert to the
standard variable rate
available at the time.
It may be possible to
fix again when the period
ends. This mortgage allows
easy budgeting because
you know exactly how much
your monthly payments
will be.
Fixed rate
mortgages will protect
you against possible rises
in variable rates but,
if general rates fall
below the level of the
fixed rate then this could
work out a more expensive
option.
Flexible
mortgages
Allows you to make additional
or lump sum payments in
excess of your scheduled
monthly amount, enabling
you to pay off your mortgage
early. This reduces the
amount of interest charged.
In addition, you can choose
to re-borrow the money
at any time.
Capped
rate mortgage
Somewhat like the fixed
rate in that the maximum
amount you pay is determined
during the given capped
period, however if interest
rates come below your
capped rate then your
rate will reduce to that
rate as appropriate.
Cash
backs
The lender gives you either
a percentage of the loan
or a flat amount as a
cash incentive. This is
not added to the loan
and does not attract interest,
though it may be repayable
if the loan is repaid
before a given period
of time. It is common
for a cash back to be
combined with other mortgage
products such as fixed
or discounted rates. Cash
back appeals particularly
to first time buyers,
money can be used for
legal fees, soft furnishings
etc.
ISA (Individual
savings account)
Throughout the period
of the loan only the interest
is paid off. At the end
of the loan period the
loan amount is still to
be paid off. To pay this
amount a separate endowment
policy or other suitable
strategy is created at
the start of the loan
period. The funds created
by this are used to pay
off the loan. If the investment
has done better than expected
then you will have the
surplus funds. However,
if the policy does not
cover the loan amount
you will have to cover
the shortfall.
If you have
any dependents it is a
good idea to make sure
that, in the event of
you becoming seriously
ill or dying, they can
continue to live in your
home.
Other
charges
