A standard variable rate mortgage is based on the individual lender’s own base rate. This rate is the one that customers revert back to at the end of a fixed, tracker, capped or discount period. This is currently much higher than the Bank of England base lending rate.

With a fixed rate mortgage your monthly payment will not alter for the period of the fixed rate.

If you are the kind of person that likes the reassurance of knowing exactly what your monthly payments will be, then a fixed rate may be the most suitable mortgage for you.

A fixed rate has the advantage also of potentially saving you money if interest rates generally move higher during the fixed rate term. On the other hand if interest rates move downwards you might be regretting having tied yourself into a fixed rate term.

At the end of the fixed rate period you will revert to the standard variable rate or another rate that that will last for the remainder of the mortgage term.

Usually there will be a penalty charge covering the fixed rate period during which you will pay a charge for redeeming the loan.

There are some fixed rate deals without redemption penalties.

At the end of a fixed rate term, assuming there is no tie in period or penalty for going elsewhere it may be beneficial to re-mortgage to another lender

These are a type of variable rate mortgage, but with a big  difference. They have an ceiling, or cap, beyond which your payments can’t rise.

Just like any other fixed or tracker rate a  capped rate is normally only for an introductory period – this can typically be anything from two to five years.

They guarantee that your mortgage payment won’t go above a certain level, but because they are a kind of variable rate, they also let you benefit from lower payments when rates go down.
Capped rate mortgages do tend to offer a higher variable rate than the best tracker rates and discounted rates available, as you pay for the security that the interest cap provides.
Once the introductory capped rate period comes to an end, your mortgage will go onto a lender’s Standard Variable Rate or a tracker rate for the remaining term although you can remortgage to a new deal if you wish.

You will need to make sure you can comfortably afford the maximum payment with a capped rate mortgage, as well as having the flexibility in your budget if your mortgage payment fluctuates.

A discount rate mortgage offers a percentage discount off the lender’s standard variable rate. The level of discount is usually fixed for the period of the discount, anything from 6 months to 5 years.

At the end of the discounted rate period you will revert to the standard variable rate or another rate that that will last for the remainder of the mortgage term.

Usually there will be a penalty charge covering the discounted rate period during which you will pay a charge for redeeming the loan.

There are some discounted rate deals without redemption penalties.

At the end of a discounted rate term, assuming there is no tie in period or penalty for going elsewhere it may be beneficial to re-mortgage to another lender.

With a base rate tracker mortgage the rate of interest is tied to the base rate set by the Bank of England.

It is really a discount mortgage, see above, provided in a different format. The rate you pay is given as a percentage margin that can be above or even below the Bank of England base rate and this margin is usually fixed for a period, anything from 6 months to five years.

At the end of the tracker rate period you will revert to the standard variable rate or another rate that that will last for the remainder of the mortgage term.

Usually there will be a penalty charge covering the tracker rate period during which you will pay a charge for redeeming the loan.

There are some tracker rate deals without redemption penalties.

At the end of a tracker rate term, assuming there is no tie in period or penalty for going elsewhere it may be beneficial to re-mortgage to another lender.

Cash-back mortgages are often aimed at first time buyers and the mortgage lender will offer a lump sum of cash at the start or sometimes at an agreed point during the term of the mortgage.

Usually the cash-back is offered as a package of benefits (e.g. linked with a discount) but pure cash-back mortgages are not uncommon.

Mortgage lenders may offer a sum of money towards the cost of legal fees or survey charges. This could be, for example, £200 to £1000 as a flat amount, or a percentage of the mortgage loan.

Self Cert mortgages are no longer available

Buy-to-let mortgages are for investment properties.

They are available with the same rate types as for residential mortgages as described above. The rates, however tend generally to be higher.

The amount that a lender will offer to lend will depend most commonly on the amount of rent that the property will command as assessed by the valuer appointed by the lender. However, there are lenders who, where there is a shortfall in the rental income, will allow this to be made up from regular income, as long a there is a sufficient amount spare after taking into account existing credit commitments.

You will have to put down a minimum of 15% deposit although, currently there is only one lender available at 15% deposit. There are some 20% deposit schemes but more commonly a 25% deposit will be required. It is important to discuss your buy to let requirements with a broker who is best placed to let you know what your options are.

Each lender has its own formula for working out how much you can borrow so you should consult an adviser who will have each lender’s criteria available.

It is very important to know that not all lenders will lend on all types properties and that the property needs to be in a ‘lettable’ condition for the lender to consider advancing a loan.

100% Mortgages are not available at present.

Previously 100% loans covered the full value of the property, so no deposit was needed.

These was popular among first time buyers who otherwise would not have been able to get a mortgage even though they may have had sufficient income.

These mortgages were normally more costly because the lender was taking a greater risk.

Some lenders were even able to lend more than the purchase price if there was enough income and this extra borrowing was used to pay for the costs associated with the mortgage and to pay for extra things like home improvements or household goods.

The 100% mortgage was not suitable for everybody’s needs and in a falling property market you could have ended up owing more than your house was worth – ‘Negative Equity’. You should always seek professional advice before deciding on which type of mortgage is most suitable for your needs.

These days there are schemes available such as the Government’s Help to Buy schemes that require only a 5% deposit. Please ask us for more details.

There are many varying degrees of flexibility. But for a mortgage to be truly flexible it needs to allow the borrower to do the following;

Overpay
Underpay
Take payment holidays
Borrow back overpayments
Draw-down prearranged additional monies
Carry no redemption penalties
Calculate interest daily.

By overpaying, your mortgage will finish before the original mortgage term, thus saving you thousands of pounds in interest payments. Even small regular overpayments can make a big difference to the overall interest that you will pay, so it is very worthwhile considering this option. You will find that the interest saved in overpaying into the mortgage is greater than the interest gained in holding the money in a bank or building society savings account. And the interest saved is done so without being taxed.

Once you have built up an amount of overpayments you can ask the lender to allow you to underpay up to the amount that you have previously overpayed. This can be handy for the odd month when finances are short.

Some lenders will allow you to take a payment holiday i.e. a complete break from making mortgage payments. Of course you have to have built up sufficient overpayments to cover the period you take off and the length of term allowed will vary from lender to lender. This facility could be useful when planning a family.

Whilst overpaying regularly or in lump sums is a great way of saving money, this overpayment can also provide a source for cash for you in the event of any unforeseen circumstance or if you want to buy something expensive. The overpayments are regarded as your money and therefore you can borrow them back.

Some flexible deals carry no redemption penalties. These are normally term flexible variable rates that last for the whole of the mortgage term. But recently, some lenders have introduced short term fixed, discount and tracker schemes that have redemption penalties that cover the scheme period. At the end of the scheme period the rate reverts to the term flexible variable rate. The term flexible variable rates on flexible deals are usually very much below the lenders usual standard variable rate.

Interest is calculated daily which means that any payments and overpayment are credited to the mortgage account as soon as they are paid, so you are immediately paying interest on a smaller amount of debt. This saves you money in interest charges that would otherwise add up to a significant sum over a number of years. Traditionally, mortgage interest was calculated and applied annually in arrears, so you would be paying interest on the same amount of debt all year, even though you had been gradually decreasing it during that time.

Repayment, interest-only

 

A repayment mortgage guarantees you loan is paid off in full at the end of the agreed term.

With a repayment mortgage you make monthly payments that cover both the interest on the loan and the repayment of the loan itself.

This brings the peace of mind of knowing that you are reducing your debt every month.

A repayment mortgage offers the reassurance that once the final payment has been made you will have paid off the mortgage in full ( providing all the repayments have been made)

Interest-Only mortgage

With an interest-only mortgage you only pay-off the interest on the loan and none of the outstanding debt until the end of the mortgage term.

So in order to pay off the mortgage at the end of the term you have 2 options:

1) Use an investment plan that is designed to pay off the loan at the end of the mortgage term. There is no guarantee that the investment you choose will generate sufficient capital to pay off the outstanding debt at the end of the mortgage term.
2) Rely on the sale of the property to do this. This is a pure interest-only loan. Many lenders will not allow a pure interest loan unless the amount you are borrowing is less than 75% of the value of the property. Paying only interest without an additional investment vehicle means that your monthly payments will be considerably less that for a repayment loan.

Repayment and interest combined

With a combined mortgage a proportion of the loan is treated as an interest only mortgage and a proportion as a repayment mortgage. Therefore, you will use both repayment and interest only to pay the loan.

If you have an existing investment policy in place before seeking a mortgage you may want to consider this option.

This type of mortgage is most common with people who already have an investment product (an endowment, ISA or pension plan) prior to taking out the mortgage and want to use this to help reduce the additional cost of taking out the mortgage.

It is possible to use an investment policy to repay part of the loan, and then pay the remaining part with a repayment mortgage. For example, if you want to take out a £250,000 mortgage and already have an endowment that could pay £100,000 in a number of years time, you could consider an interest-only element to cover the first £100,000 and a repayment element for the remaining £150,000.