Mortgage

Purchasing a property probably means making one of the most important financial decisions of your life. With so many lenders offering so many different mortgages, how can you be certain of making the right choice?

Repayment Methods

Capital & Interest Repayment Mortgage

The traditional way of repaying a mortgage. Repayments consist of both capital and interest with the debt reducing over the term of the mortgage. A separate life assurance is usually arranged to protect the mortgage debt.

Endowment Mortgage

A way of combining a house purchase with an investment and including a life assurance. Interest only repayments are made to the lender with a premium payable to a life assurance company. The debt does not reduce but is repaid at the end of the mortgage term by the maturing endowment policy. The final maturity amount is not guaranteed and may be more or less than the mortgage debt.

ISA Mortgage

Also a way of combining a house purchase with an investment but life assurance is not automatically included and needs to be arranged separately. There is the flexibility to increase or decrease regular contributions and contribute additional lump sums or take withdrawals. The final maturity amount is not guaranteed and may be more or less than the mortgage debt.

Flexible Mortgage

Usually arranged on a capital & interest repayment basis with interest calculated daily with the flexibility to make additional repayments to repay the mortgage early.

Mortgage Interest Rates

Standard Variable Rate - SVR

The mortgage lender's normal base mortgage rate.

Discounted Interest Rate

The SVR is discounted for a period of time, usually 1 to 5 years, to offer the borrower the incentive of cheaper repayments.

Fixed Interest Rate

The interest rate is fixed for a period of time, usually 1 to 5 years, to offer the borrower the security of fixed repayments.

Capped Interest Rate

The interest rate is variable but guaranteed not to exceed a certain level, the cap, but may fall in line with the SVR.

Cashback

The lender offers a cash lump sum on completion of the mortgage as an incentive. The larger cash backs are available on the SVR. Smaller cash backs may be combined with other incentives.

Base Rate Tracker

The interest rate charged is linked to the Bank of England Base Rate instead of the mortgage lender's SVR.

Redemption Penalties

Very often, where an incentive is offered, the lender makes it conditional on the borrower maintaining the mortgage account for a specified number of years - the redemption penalty period. Any redemption or part redemption occurring within this period usually incurs a financial penalty.

Costs

You may be faced with some or all of the following costs depending on the lender, your requirements and the amount you borrow in relation to the purchase price - loan to value (LTV).

Valuation fee

A charge made by the lender for their valuer to inspect the prospective property. You may pay extra for more comprehensive reports if you require them.

Arrangement/booking/reservation fee

An extra charge for certain mortgage schemes e.g. fixed rates.

Indemnity/maximum advance/risk fee

A charge where the mortgage is for more than the lender's basic advance amount, typically 70% or 75% LTV. This cost is sometimes waived as an incentive, added to the mortgage on completion or required as a payment up front. Many lenders no longer make this charge if a deposit of at least 10% is available.

Advice Fee

We charge a fee for our mortgage advice, our typical fee is £350. We will also be paid commission from the lender.

We also have a pure fee option where we refund any commission from the lender. A fee of £1,000 or 1% of the loan amount, whichever is the greater, payable upon completion.

For example, if the loan amount is £90,000 the fee would be £1,000.

If the loan amount is £150,000 the fee would be £1,500. We will refund any commission received from the lender.

Mortgage Interest Calculations

Annual Review

The lender calculates the interest due on a mortgage just once a year and sets the repayment amount for the following 12 months. Any fluctuation in interest rates is taken into account at the end of the year with the repayment amount remaining constant throughout the year. Any over payments are not taken into account until the year-end when the amount now owing is calculated again and the repayments set for the next 12 months.

Monthly Review

Interest is calculated monthly and repayment amounts adjusted accordingly. Any over payments are taken into account every month.

Daily Review

Interest is calculated daily and any over payments are taken into account immediately.

Some Important Questions You Should Be Asking

• How much can I afford to borrow?
• How can I tell which mortgage rate is best for me?
• What is the best type of mortgage for me?
• How should I repay it?
• Can I make lump sum payments to reduce the size of the loan?
• Are there any redemption penalties?
• Does this mortgage come with compulsory insurance?
• What other charges will I have to pay?
• What happens if I cannot pay?
• What about the small print?

We look forward to being of assistance to you.


Your home may be repossessed if you do not keep up repayments on your mortgage.

The Financial Services Authority does not regulate all forms of mortgages.