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Company Director:
Christine Chave. |
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Which
Mortgage? |
The
first thing to know about is the types of mortgages
available in the UK. Which one you go for depends
upon your financial habits and lifestyle. A good
mortgage adviser always looks at your circumstances
and not just the interest rates offered. |
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Tracker
Mortgages
Discount mortgages
Fixed rate mortgages
Capped mortgages
Flexible mortgages
Cashback mortgages
Offset mortgages
Redemption period
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Tracker
Mortgages
What?
Tracker mortgages shadow the Bank of England base
rate for a period of time, e.g. 0.25% above base
rate for 2 years. Is it for me?
Tracker mortgages often suit those looking for
the cheapest mortgage on the market, but who can
also cope with paying out more each month should
there be an increase caused by changes to the
base rate.
Sum up?
Often the cheapest, but you take the risk that
your payments could rise.
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Discount
mortgages
What?
Discount mortgages offer a discount off the mortgage
lender''s standard variable rate (SVR) for a period
of time, e.g. 1.4% below the mortgage lender''s
SVR. Is it for me?
Like tracker mortgages, discount mortgages often
suit those looking for the cheapest mortgage on
the market, but who can afford any increases to
their monthly payments.
Sum up?
More than likely one of the cheapest mortgages
available, but make sure you can afford any payment
increases.
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Fixed
rate mortgages
What?
With fixed rate mortgages, you agree to pay the
same interest rate for a certain amount of time.
Therefore you know exactly what you are paying each
month. Is it for me?
Fixed rate mortgages tend to be a favourite of
first time buyers and young families who need
to budget - or anyone who requires financial security.
Sum up?
You may pay a slightly higher interest rate, but
for some people the extra cost is worth the peace
of mind.
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Capped
mortgages
What?
Capped mortgages guarantee that your monthly payments
cannot go above a certain amount, but if interest
rates fall significantly then your mortgage payments
can drop.
Is it for me?
Capped mortgages often suit those who can cope
with the fluctuations of a variable rate, but
are also concerned about interest rates soaring.
Capped mortgages offer a measure of security and
for some borrowers they provide the perfect compromise
between a fixed rate mortgage and a variable rate
mortgage. However, it''s important to note that
you often pay a higher interest rate.
Sum up?
Some security, some risk - a half way house. But
you could pay more for it.
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Flexible
mortgages
What?
Flexible mortgages are mortgages which allow you
to do things that a more traditional mortgage would
not. They came about due to an increasing need for
borrowers to do things such as take payment holidays,
make overpayments, due to having an irregular income,
for example. Is it for me?
Flexible mortgages are there to suit your financial
habits, so you may find that a particular feature
is of great benefit. However, you may pay a higher
interest rate for the privilege. You can always
go for a traditional mortgage which offers flexible
features, without the higher interest rates of
flexible mortgages. For example, some ordinary
mortgages now offer the ability to make overpayments.
Sum up?
Go for a flexible mortgage if you need a particular
feature and can''t find it with a traditional
mortgage.
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Cashback
mortgages
What?
With cashback mortgages the mortgage lender gives
you a cash sum to the value of an agreed percentage
in relation to your mortgage. For example, 4% of
your £100,000 mortgage gives you a cash sum
of £4,000 Is it for me?
Cashback mortgages probably sound appealing, but
they only really suit those in specific need of
a cash sum, with no aversion to being tied to
their mortgage lender for a set period of time.
If the lump sum sounds too good, then it probably
is: you may have to pay a higher interest rate
and there may be early repayment charges.
Sum up?
Attractive cash sum, but watch out for higher
interest rates and early repayment charges.
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Offset
mortgages
What?
With offset mortgages, your savings are used to
pay off your mortgage. For example, your mortgage
is £150,000 and you have £25,000 in
savings, so you only pay interest on the difference
of £125,000. You pay the mortgage lender each
month as with a traditional mortgage, but your savings
work as an overpayment. Some offset mortgages have
a current account attached. Is it for
me?
Only of benefit to borrowers with substantial
savings. You can pay off your mortgage more quickly
than with a traditional mortgage, plus you are
making good use of your savings, and offsets are
tax efficient if you are a higher rate taxpayer.
However, you may pay a higher rate for offset
mortgages. This doesn''t mean they are not the
cheapest option for some borrowers however, but
this point illustrates the benefits of consulting
a mortgage adviser to look at the whole picture
for you.
Sum up?
Modern and attractive, but only effective if you
have savings.
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Redemption
period
What?
The time in which the mortgage lender will charge
a penalty for repayment of the mortgage. Is
it for me?
If you might be looking to repay your mortgage
within the product period i.e. 3 year fixed rate,
a mortgage with no early redemption penalty might
be more appropriate but the rate charged could
be higher. Some redemption penalties are charged
beyond the product period i.e. 2 year discount
but 4 year redemption penalty. This could provide
an attractive rate initially, but once this rate
has expired you would be tied into the mortgage
companies standard variable rate, which could
mean a big increase in the mortgage payments payable.
Sum up?
A good mortgage adviser always looks at your circumstances
and take this into consideration when making recommendations.
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