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Mortgages
and Re Mortgages
Which Mortgage is Right
For You?
Navigating your way through the mortgage market may
seem an overwhelming and intimidating process, especially
given the abundance of available mortgages and mortgage
providers. By selecting eMortgages
you will benefit from qualified mortgage advisers
searching the 'Whole of Market' to find the best deal
that suits your requirements.
Repayment Mortgage
A Repayment Mortgage is structured so that the monthly
mortgage payments, comprising partly of capital and
interest, pay off the original amount borrowed as
well as the interest that would be accrued over the
mortgage term, by the end of the term.
A Repayment Mortgage is clear-cut and uncomplicated.
It is a guaranteed way of repaying the loan provided
that all payments are made and kept up with. The amount
that you owe decreases as time goes on. Although in
most cases it is not compulsory to arrange life cover
to protect the mortgage, it is worthwhile to arrange
at least life cover to ensure the loan can be repaid
in the event of your death and to avoid the house
having to be sold in order to repay the mortgage.
It is prudent to protect yourself and your mortgage
in the event that you become unable to work because
of illness or injury. We have a wide range of protection
such as income protection, critical illness plans
and mortgage & unemployment cover to protect you
and your mortgage.
Interest Only Mortgage
These are so called due to the fact that you pay
interest to the lender each month. The original loan
amount remains outstanding for the term of the loan.
Therefore, suitable investments are planned in order
to repay the loan at the end of the term. These investments
are arranged at the beginning of the term and they
include Pension Plans, Endowment Plans, PEPs, ISAs,
and so on.
The amount originally borrowed on Interest Only mortgages
does not change because you pay off the capital at
the end of the term. This is done by contributing
towards the "Repayment Vehicle" (i.e.: the
investment's) chosen, which aim to provide a sufficiently
large sum to repay the loan at the end of the term.
These mortgages are deemed to be a higher risk than
repayment. This is because the repayment vehicle,
i.e the investment, is not guaranteed to appreciate
in value, as they are usually stock market based.
If the investment does not provide as good a return
as was expected, it may not cover the loan. The onus
is then on you to ensure that you can repay the loan
at the end of the term.
Investments associated with Interest Only mortgages
are portable meaning that you can keep the investment,
add to them and link them to a new mortgage if you
move house. Also, as a result of the original amount
borrowed never going down, if you sell your house,
the entire amount borrowed will need to be repaid.
So, now you know what types of mortgage are available
to you, what about the types of interest rates? So
many choices aren't there? Don't worry about getting
confused with either choosing the right mortgage or
interest rate type for you. Through discussions with
you, we can come up with the right mortgage that suits
your needs, lifestyle and income.
Interest Rate Types
There are a variety of interest rate types available
to you.
These are;
Fixed
Discount
Tracker
Standard Variable
Off Set
Capped
Cashback
Current Account
Flexible
It is important to note that interest rates can fluctuate
with very little warning. Therefore this is another
important area, which must be seriously thought about
due to the different types of interest rates that
are available and their implications.
Current mortgage interest rates depend on the financial
markets. As these rates fluctuate, so to can the amount
you pay each month. However, mortgage lenders put
together "Special offers" to entice you
to buy from them. Some of these special offers include
fixed, variable and discounted offers.
Each of these offers has advantages and disadvantages.
For example, you may think that interest rates are
going to decline so you settle on a variable rate
but if the rate goes up, you will have to pay more.
Whereas a fixed rate remains static for a set period
of time so that you have a set rate that you pay each
month, irrespective of the actual rate at that time.
Mortgage Interest Rate
Information
Fixed Rate Mortgage
This type of mortgage allows you to keep a static
rate of interest for a specific period of time, i.e.
as its name suggests, you will be fixing the rate
of interest that you pay at a given level, keeping
your monthly mortgage payments level, irrespective
of interest rate fluctuations.
The Benefit of this is BUDGET PLANNING. You will
know exactly the amount being deducted from your bank
account each month, even if the interest rates increase
significantly. The Drawback of this is that if interest
rates FALL during your fixed rate period, you will
be paying more during this time, making it costly
for you.
On average, fixed interest rates are more expensive
than other mortgages and usually incur a booking or
arrangement fee payable to the lender. This is because
of the budget certainty safeguards that they offer.
When the fixed rate period is finished, you will
revert to the lenders standard variable rate. If you
want to repay your mortgage in full or if you want
to remortgage away from the fixed rate, you will probably
incur a redemption penalty.
Discount Rate Mortgage
This type of interest option will give you a percentage
reduction off your mortgage lenders standard variable
rate. The discount will only apply for a specific
period of time. The Benefit of this is that when interest
rates drop, so do your monthly payments, ensuring
that you are not paying "over the odds"
for your mortgage.
The Drawback is that you will not have the budget
certainty as with a fixed rate. Your payments will
change as interest rates change and if you do not
have a good level of disposable income available to
you, the monthly repayments, living costs and savings
may stretch your budget to the limit. You may find
that what was a comfortable level of outgoings soon
becomes unaffordable. Again, if you repay or remortgage
away from your lender during the discount rate period,
you may have to pay a redemption penalty.
Tracker Rate Mortgage
Tracker mortgages work on the same principle as discounted
rate mortgages. The interest rate that you pay stays
within a given level of the Bank of England Base Rate.
It will experience the same fluctuations as above
and has the same benefits and drawbacks.
Standard Variable Rate
Mortgage
It is the rate that is standard to lenders. As it's
name suggests, the rate is variable i.e, it will normally
fluctuate with the Bank of England base Rate increases
and decreases.
Capped Rate Mortgage
These rates limit your payments to variations between
a minimum and maximum rate for a set period of time.
Cashback Mortgage -
Cash Back Rate Mortgage
Lenders offer cashback as another incentive to use
their products. With a cashback mortgage the lender
will give you a sum of money on completion of the
mortgage. For this type of offer, you are usually
restricted to the standard variable rate for a set
period, and have to repay some or all the cashback
if you wish to redeem your loan sooner.
Off Set Mortgage Account
- Current Account Mortgage
Your mortgage and current account is put together
into one large bank account, still giving you the
ability to use your account as you normally would.
The mortgage is offset against the credit balance
in your current account and the monetary amount of
interest that you pay is adjusted accordingly.
Flexible Mortgages
These are structured so that you can overpay, underpay
and even take payment holidays without incurring any
penalties. Most flexible mortgages have their interest
calculated daily, bringing about the full benefits
of overpaying. Regularly overpaying the Flexible Mortgage
without later underpaying could lead to the mortgage
being paid off sooner.
Flexible mortgages allow you to vary
the amount you pay, either overpaying it, under paying
it or taking payment holidays as long as you do not
exceed your original mortgage threshold. Some enable
you to use your mortgage account as a current account,
giving you the ability to pool your money with the
standard current account options of a cheque book
and debit card. Also, you may prefer to link a savings
account to your mortgage, offsetting interest due
on your savings against interest payable on your mortgage.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage.
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