Mortgage
Services
from
Fresh Financial
|
Mortgage |
|
|
There are two main types of mortgages available to the UK resident and below we have broken these down into the types of mortgage and also the various options available regarding how the interest is calculated on a particular mortgage. We have included a small piece of information about each one. Types of Mortgage Repayment mortgage - This is where each month the payment made to the lender pays back some of the interest on the loan and some of the capital of the loan of the mortgage so that eventually you will have no debt left to pay at the end of the term of the mortgage. There are both advantages and disadvantages to a repayment mortgage. The advantages of this form of mortgage are that at the end of the term of your mortgage you know that the total amount of the debt has been totally repaid. Overpayments and lump sum payments paid into your mortgage account can be made which will reduce both the interest and capital amounts repayable. Life assurance cover is not always necessary in taking out this type of mortgage. The disadvantages of a repayment mortgage are that there can sometimes be financial penalties for making lump sum or overpayments into your mortgage account. In the early years of a repayment mortgage the majority of the monthly repayment is interest rather than capital. For borrowers moving house regularly, this can result in very little of the capital being paid off. If you have no life assurance cover in place and die before the loan is repaid, the mortgage will still need to be repaid. This may result in the property having to be sold to repay the debt owed. Interest only mortgage - Is where you only pay off the interest element of the loan that accrues and not the capital value of the house. To repay the capital of the loan you will usually make a payment in to some sort of investment account to allow for the capital payment at the end of the mortgage, e,g endowment, ISA or Pension. The advantages of an interest only mortgage are that if the proceeds of the investment vehicles exceed the amount required to repay the mortgage, then this is received as a cash lump sum by the borrower at the end of the term. The disadvantages of an interest only mortgage are just the reverse if the proceeds of the repayment vehicle / plan don't achieve the amount required, then there will be a shortfall at the end of the term. The borrower still remains liable for any shortfall on the mortgage hence the outstanding balance will need to be paid off from other resources. Regular checking of the policy fund itself by the borrower and the lender should minimise any risk. If the plan is not reaching its expected target, the borrower can increase payments into the policy or invest in another product to cover any anticipated shortfall. Forms of mortgages available in the UK Standard Mortgage - For most property buyers in the UK a standard mortgage is taken. This is for all purchasers that fit into the standard required financial criteria required by most lenders. Bad credit mortgage - if you have adverse credit there are lenders that will help and we have access to these online today. Buy to let mortgage - looking to rent out the property you are buying then you need a specialist mortgage. we can do this for you. Flexible mortgage - this allows you to be more flexible with your mortgage, you can overpay and underpay to fit in with your lifestyle. A lot of lenders will have a higher interest rate for this type of mortgage. Let to buy mortgage - A mortgage if you want to buy another house and rent the one you are in, so that you can keep your existing property and rent it out, while purchasing another place to rent. Which Interest Rate Option Should I choose? There are thousands of different mortgage products on the market, but there are only a few different options to choose in deciding how interest is charged to your loan. Variable The basic mortgage rate which most lenders offer is a standard variable rate SVR. This generally moves up or down according to the Bank of England Base Rate changes. However, banks and building societies do not always pass on these changes to their customers, or delay doing so, which can make it worthwhile shopping around. Special rates refer to the SVR at the end of the deal period. Fixed This type of mortgage sets the interest rate you will pay for a given period of time – thereby guaranteeing that the amount you pay back each month will not change for that period. When the period expires, you will revert to the lender’s SVR. The obvious advantages of fixed rate mortgages are that if you are having to budget carefully over the first few years of your mortgage then you know how much you will be paying each month and you won’t be caught out by any surprise increases in the interest rate. Likewise, if interest rates rise above the fixed rate you are paying then you have the satisfaction of knowing you are saving money. The reverse is also true. If interest rates drop below the fixed rate you will lose out, but you will still be sure of how mush has to come out of your bank account each month. Fixed rate mortgages usually last between one and five years, the best rates occurring in the one to three year time frame. Some lenders offer fixed rate mortgages lasting 10 years or more – in some cases, the full length of the mortgage term. How long a fixed rate you opt for will depend on your view of how interest rates are going to move over the next few years, as well as the comfort you may get from knowing that whatever changes do occur, your payments each month will not change for that period. Fixed rates have proven very popular with people looking to protect themselves against interest rate movements, particularly as variable rates have been as high as 19 percent in the past. However, recent years have seen interest rates fall and many borrowers have been turning to base rate tracker mortgages instead, to ensure they benefit from those rate decreases as they occur. Also, be aware there can e catches, such as extended tie-ins. Capped A variation on the fixed rate mortgage, capped rate mortgages guarantee that your monthly payment will never go above a set figure (or ‘cap’) within the time period. Below that set figure, the rate will move up and down in line with the lender’s SVR. This means you can be certain of the maximum amount you will pay and may benefit from lower rates as interest rate fluctuate. Discount This type of mortgage gives a discount on the lenders standard variable rate for a specified period. This means that whether the interest rate goes up or down, you will always be paying a reduced rate for the length of the deal. If interest rates are falling these deals can be very good news. Likewise, when rates rise you will always be paying less than borrowers on the SVR. Discount rates are worth considering if you think the rate will average out below the fixed and capped rate products in the market. Be warned, though, discounted deals can have stringent redemption periods attached. Tracker These faithfully track, by a set percentage, the Bank of England base rate. Every time that base rate changes so will the payments on your mortgage this is fine when rates are going down as they ensure you immediately benefit from any savings, whether or not your lender has decided to pass on the change by lowering its standard variable interest rate. However, if interest rates to up, then so will your payments and you could be paying above the odds if your lender decides not to pass on the rate increase to its other customers. Flexible Flexible mortgages can offer borrowers greater control of their finances by calculating interest daily and allowing the option of overpayments. Paying just a few pounds extra each month you can pay back the capital of your loan faster, considerably reducing the mortgage term and saving you thousands in interest payments. Once you have been paying the mortgage for a while, most flexible loans allow you to make underpayments. Some lenders also offer a cheque book or reserve account facility allowing you to draw down on your overpayments or, if you have equity in the property, to borrow more. While most flexible mortgages follow the lender’s SVR, a growing number of lenders are now offering special deals. All-In-One Accounts Current account and offset mortgages are the big new thing in the mortgage world. They allow you to save money by ‘offsetting’ the interest you pay be taking account of your credit balances in your savings or current account and using them to reduce your debt. Below are a few tips while looking for a mortgage. 1. Always look at long term value – what looks great at the beginning of your mortgage may not necessarily be the best deal in the long run 2. Try to avoid tie-ins, especially those lasting longer than the deal period 3. Make sure you know what the early redemption penalty will be if you do need to pay off your mortgage early 4. Work out how much your repayments will be if interest rates rise by as much as two or three percent. Make sure you can afford any increase 5. There is competition for your business, so shop around for the best deal 6. Many lenders offer reduced fees or even fee-free deals – especially to first time buyers or remortgage customers. 7. Flexible and current account mortgages are only beneficial if you use the features 8. Always seek professional advice, with Fresh Financial you will never have to pay for it whatever your circumstances or requirements.
|
|
©
Fresh
Financial
2005
THIS WEBSITE IS INTENDED FOR UK CUSTOMERS ONLY
Fresh Financial
is an
appointed representative of Network Data Limited which is authorised
and regulated by the
Financial Services Authority
Network Data is entered on the FSA register (http://www.fsa.gov.uk)
under reference 300391. |
