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For most people, your home will be the largest single investment you will ever make, so making the wrong decision can become a very expensive mistake. Taking the wrong mortgage can end up costing thousands extra over the lifetime of the loan, and what appears to be the cheapest on day one will not always prove to be so over an extended period of time.
Furthermore, to add to the confusion, there are now a bewildering number of mortgage types available to select from. We've written an overview of some of these in the accompanying pages, but to make a truly informed decision, call us on 01842 752140 and ask for an appointment with one of our advisers.
A fee may be charged and we will be paid commission by the lender.
Your home or property may be repossessed if you do not keep up payments on your mortgage.
Capital and Interest
This is the simplest type of mortgage. The payments you make to the lender every month pay off both the capital and the interest from the loan. Provided you keep up the payments, you are guaranteed to pay off the loan by the end of the term agreed (usually 25 years).
The lender calculates your monthly repayments depending on the amount borrowed, how long for, the interest rate & how the rate you have chosen is set.
A fee may be charged and we will be paid commission by the lender.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Interest Only
Don't you mean endowment mortgage?
For many people, interest only mortgages are called 'endowment mortgages' or even 'pension mortgages', but strictly speaking these names describe an interest only mortgage plus the method by which it is repaid. In other words, an endowment mortgage is an interest only loan that is repaid by the proceeds of an endowment policy etc.
How they Work
An interest only mortgage is where the lender (a bank or building society usually) only charges you interest on the loan you've agreed. You don't pay the capital back until the end of the mortgage. The lender will usually ask you at the outset, to provide an investment plan of one type or another to repay the loan at the end of the term, such as an endowment policy or ISA savings plan, but sometimes they will leave the repayment plan entirely up to you.
Every month, you then pay this interest to the lender for the duration of the loan. The lender calculates your monthly repayments depending upon how the rate you have chosen is set. At the end of the loan period, the lender will expect the initial capital they lend you to be repaid in full by whatever means you have arranged.
A fee may be charged and we will be paid commission by the lender.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Flexible Mortgages
The flexible mortgage is a relatively new type of mortgage, or at least new in the UK. It was invented & has been used in Australia for many years, but is now growing in popularity in this country as more and more lenders adopt it.
A bit of background
The traditional UK mortgage has been with us for many generations. It was designed with the assumption that people had full time employment and could therefore cope with set monthly payments for a 25 year period. However, as many people have discovered, the traditional mortgage does not always cope well with modern employment trends, such as contract working, self employment, job sharing and part time work.
This is where the flexible mortgage comes in. It has the facility for both over and underpayments built into the loan. What this means is you can overpay your mortgage when finances allow (pay rise, bonus, an inheritance etc.), and then, providing you have made overpayments in the past, underpay when finances are tight (job loss, change in circumstance etc).
A Generic Example
If you overpay your loan by £50/month for say five years on a flexible mortgage, that cumulative amount is then made available as a cash reserve for you to draw on at any time during the remainder of the mortgage term. This cash reserve can normally be drawn on for such things as, taking payment holidays or making large purchases. Indeed some lenders actually issue the borrower with a cheque book and encourage them to use the account as an all encompassing bank account. However the amount you can withdraw is limited by the original sum of the loan.
The main benefit of borrowing against your 'mortgage account' is that mortgages are usually the cheapest form of borrowing. In other words, you'll pay less interest on the amount you borrow!
If on the other hand, you overpay but never make any withdrawals, you can save a significant amount of interest over the life of the loan. This is because most lenders who offer this type of loan calculate the interest you pay on a daily basis (see what to look for), therefore any overpayment comes immediately off the debt and interest payments are adjusted accordingly.
A fee may be charged and we will be paid commission by the lender.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Lifetime Mortgages
Lifetime mortgages involve the taking out of a mortgage secured against the value of the home. There are no monthly repayments with some schemes where interest is rolled up over the life of the loan and repaid upon leaving for long-term care or death, at which point the property is sold and the lender repaid. Interest can be fixed or capped. One aspect is that the loan can increase as interest is added over time to greater than the value of the property, although the Equity release councils member schemes offer a no-negative-equity guarantee.
A fee may be charged and we will be paid commission by the lender.
Equity release refers to Home reversion plans and lifetime mortgages. To understand the features and risks as for a personalised illustration. For Equity Release we charge an upfront fee of £750 and also get paid commission by the provider.
Reversion Schemes
A reversion scheme involves selling a percentage of a property to a reversion company for a fixed amount. In some cases this is easier to explain. Homeowners over 50 will receive a certain amount of the value of the property sold depending on their age. When the property is sold, the reversion company receives the same percentage of the sales proceeds, which was originally borrowed against the value of the home. These are the oldest forms of Equity Release dating back to the 1960s.
A fee may be charged and we will be paid commission by the lender.
Equity release refers to Home reversion plans and lifetime mortgages. To understand the features and risks as for a personalised illustration. For Equity Release we charge an upfront fee of £750 and also get paid commission by the provider.
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