Mortgages
INTEREST ONLY
With this type of mortgage the loan is not paid off at all and interest will be payable on the total mortgage amount for the duration of the mortgage term. With this type of mortgage you will need to be paying into an investment that has the potential to grow into a sum large enough to pay off the mortgage at the end of the term.
ISA Mortgages
Tax efficient investing in shares and/or unit trusts. Growth is tax free. Dividends are now taxable. No early redemption penalty if the plan is cashed in before the end of the mortgage term. Lower charges.
Very tax efficient with relief at highest rate on all payments into the fund. Life
assurance cover included. Not suitable for everyone. Contributions are paid into
a pension scheme. At retirement age, the tax-
These were very popular in the late eighties. They provided life assurance and were
designed so that at the end of the mortgage term, the investments and income would
provide tax-
With any of the above it is essential you seek independent financial advice from a qualified and regulated financial advisor.
REPAYMENT
With this type of mortgage you pay interest on the outstanding balance and repay some of the mortgage loan with each payment. In the early years the payments are mostly interest but the interest reduces over the term.
Variable Rate
A variable rate mortgage is one of the most common and simplest mortgages. The interest rate charged reflects changes to the Bank of England base rate. Although in recent years this has been fairly constant with just quarter point changes each month, historically the rate has changed by several percentage points in a single day. This may make it difficult to budget as monthly payments can vary depending on the general economy.
Fixed Rate
A fixed rate mortgage fixes the interest rate for the loan for a set period of time. At the end of the fixed rate period, the mortgage can revert to the lender’s standard variable rate. An arrangement fee is normally charged with this type of mortgage. However the borrower has peace of mind knowing that whatever happens to interest rates their payments will remain unchanged for the fixed rate period. Generally the longer the ‘fix’ the higher the interest rate. You should be aware that fixed rate mortgages can have hefty penalties for early redemption, sometimes these extend well beyond the fixed rate period, tying you in to a lender’s variable rate mortgage.
Flexible Mortgage
Many of the high street lenders now offer flexible mortgages. These allow overpayments to be made resulting in your mortgage being repaid earlier without any early redemption penalties. This is due to the saving of interest on the overpayment, over the remaining duration of the mortgage. Should you have temporary financial difficulties, where you are unable to make the regular monthly payment, it is possible to make underpayments and, depending on any overpayments, possibly take a payment holiday for a short period. It is also possible to take out additional loans, with the amount added to the outstanding mortgage balance. Obviously there will be certain conditions regarding the amount you are able to borrow. The rate will normally be lower (in most cases) than a separate personal loan and you will not have to formally apply for the new loan. However you should remember that a larger mortgage balance will take longer to repay and/or will increase your monthly repayments. (Not all of these features are available with all flexible mortgages and depend on what is on offer from the particular lenders.)
Current Account also known as an Offset Mortgage
This type of mortgage makes use of the funds in your current account and can also
be linked to other savings accounts. The available funds in these accounts are used
to reduce the outstanding mortgage balance thus reducing the interest charged on
the mortgage. However the money in these funds is still available to withdraw as
with a normal current or savings account. The advantage of this type of mortgage
is that the interest saved is usually higher than the interest received on savings
accounts. It also has the added benefit that the interest saved is not taxable, as
is the case with non-
Capped rate mortgages cap the rate of interest charged on the loan to a set level, usually in line with Bank of England interest rate. It will not rise above the capped rate and will not fall below a certain rate. As with fixed rate mortgages there is an arrangement fee and early redemption penalties apply if you change lenders.
Discounted Rate
This is predominantly targeted towards first time buyers. A lower or discounted rate of interest is charged during the early years, which may be convenient if you are financially stretched. You must be aware that some lenders add the interest saving to the outstanding loan. Again there are early redemption penalties, which can extend beyond the discounted period, tying you to the lender’s standard variable rate.
This mortgage starts on a variable interest rate but allows you to switch to the
lender’s fixed-
Some standard variable rate mortgages offer a 'cash back' when the mortgage is taken
out. The cash can be used for any purpose and may help first time buyers with moving
and legal expenses. There is normally a five-
Shared Ownership
Unless you have a sizable deposit of around 10 -
Mortgage Applications
It is vitally important that you take steps to ensure your mortgage application is
not rejected. Click the link for more on mortgages including fees, charges and advice
on making an mortgage application -
Homeowners may need to remortgage at the end of a fixed-
CURRENT BEST-
There are basically two forms of mortgage: Interest Only and Repayment. There are however different types of each of these in the mortgage market today. Outlined below is a brief description of each type. This website sets out to provide you with general information only and does not in any way offer or intend to give you advice or recommend any specific investment or financial product.
YOU SHOULD TAKE ADVICE FROM A SUITABLY QUALIFIED AND REGULATED FINANCIAL ADVISOR OR MORTGAGE BROKER
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