headerimageChoosing the right mortgage for you…

The largest financial commitment decision most people make is their mortgage and it is therefore vital that you are able to choose which mortgage is right for you.  Dozens of banks, building societies and other lenders compete for your business, offering thousands of different mortgage deals with complex combinations of interest rates, fee incentives and  other enhancements.

In addition, each lender has its own lending criteria and underwriting methods, making the decision-making process even harder.

Without specialist mortgage advice, you could find that you have a mortgage which is not appropriate for your needs, or choose a mortgage with larger fees or higher monthly repayments.

As independent financial advisers we are not limited to a “panel” of mortgage lenders but  can access mortgage deals from the whole market.  Also, as we are members of a number of specialist mortgage clubs, we have access to a range of special mortgage deals which  are not available in the high street.

Choosing your mortgage

There are four main decisions to be made when selecting your mortgage.

The first step is to work out how much you can afford to borrow.  You need to be sure that your mortgage payments are affordable, not only now but also in the future.  Interest rates change, and you need to make sure that when they rise, you can afford your monthly payment.  We will help you plan your budget to make sure you are not taking on more than you can afford.

Your mortgage is a long-term commitment, but the sooner you pay it back, the less interest you will pay on it.  There three ways or going about this:-

  • Capital repayment.  The monthly payments consist of two parts, interest and repayment of some of the money you borrowed (the “capital”).  In the early years of your mortgage most of the monthly payment will be interest and only a small part will be capital repaid.  However, as you get closer to the end of your mortgage, the capital repaid part will increase and interest part will reduce.  The monthly payments throughout the mortgage are calculated by the lender to make sure that, provided you pay them on time, your mortgage is guaranteed to be repaid at the end of the mortgage term.
  • Interest only.  As its name suggests, the only monthly payment you make to the lender is interest.  As a result, the monthly payment will be lower than for a capital repayment mortgage.  However, the amount you owe the lender will not reduce and at the end of the term you will still owe the lender the amount you borrowed.  You will therefore need to make sure that you have sufficient money at the end of the term to repay the lender in full.  This can be done by having some kind of investment plan which will enable you to save up enough to money to do this, but you are then reliant on the savings growing fast enough to equal the mortgage at its end. Interest-only mortgages are therefore much riskier types of mortgage than repayment mortgages, although they may still be appropriate where, for example, you are know for sure that you will be receiving a lump sum of money in the future.
  • A combination of the two.  Many property owners have had interest-only mortgages in the past (possibly with an endowment policy as the investment plan) but now want more certainty in repaying their mortgage.  Some lenders will allow a mortgage to be part capital repayment and part interest-only.

Now that you have decided how much you will be borrowing and how you will pay it back, the next step is to decide the most suitable way of  being charged for borrowing the money, both in terms of the interest rate you pay  and the arrangement fees and other costs charge by the lender.  There are many different products to chose from and we will help you to find the one which is most appropriate for you.

  • Variable rate.   This is a lender’s standard rate if you decide not to choose a special rate.  It will go up and down as interest rates change.
  • Fixed rate.  If you would like to know exactly what your monthly mortgage payment will be for a certain period of time, then this is for you.  The lender  will fix your payments for a number of years which will mean you can be confident about your budget.  The lender will have tried to predict what  interest rates will be in the future and will base the fixed rate on those predictions.
  • Capped rate.  A capped rate is a variable rate which will go up and down,  but has an upper limit (the “cap”) which it cannot go above.  It may also have a lower limit (the “collar”) which it cannot fall below.
  • Discounted rate.  This is a variable rate which offers a reduced rate (the “discount”) for an initial period.  After this period, the interest rate goes back  to the standard rate.  It can be useful if you do not need the security of a fixed or capped rate, but want some help in the early years.
  • Tracker rate.  A tracker is a variable interest rate which automatically follows changes in a nominated interest rate, normally the Bank of England’s Base Rate.  The tracker is usually set higher than the interest rate it tracks (e.g. it may be 1.5% above the Bank of England’s Base Rate).  It may also have a collar (see “capped rate” above).
  • Flexible mortgage.  This allows a borrower greater freedom in the way the mortgage is repaid.  They may, for example, allow overpayments, underpayments, payment holidays or the facility of borrowing back any overpayments previously made.
  • Offset mortgage.  Offset mortgages are popular with people who have significant levels of savings which they would like to have access to, but  who also need a mortgage.  There are a number of different versions, but  the most basic offset mortgage gives you two accounts with the same lender – a mortgage account and a savings account.  You will not be paid  any interest on the savings account, but the lender will only charge you  interest on the difference between the two accounts.  For example, if you  owe £100,000 on your mortgage and have £20,000 in your savings account, you will be charged interest on £80,000.  Because interest rate on  mortgages are generally higher than on savings accounts, you are  benefitting by effectively getting the mortgage interest rate on your savings.  Also, because you are not actually being paid interest on your savings, there  is no tax on it, which is especially attractive for a higher-rate taxpayer.

There are so many deals available from so many lenders that the choice can be bewildering.  Simply choosing the lowest interest rate is often not the best choice as arrangement fees, early repayment charges, valuation fees and a host of other permutations make the decision a minefield.  With the expertise we have gained over many years we can assist you with this decision and may be able to save you both time and money.

+ Affordability

The first step is to work out how much you can afford to borrow.  You need to be sure that your mortgage payments are affordable, not only now but also in the future.  Interest rates change, and you need to make sure that when they rise, you can afford your monthly payment.  We will help you plan your budget to make sure you are not taking on more than you can afford.

+ How to pay it back

Your mortgage is a long-term commitment, but the sooner you pay it back, the less interest you will pay on it.  There three ways or going about this:-

  • Capital repayment.  The monthly payments consist of two parts, interest and repayment of some of the money you borrowed (the “capital”).  In the early years of your mortgage most of the monthly payment will be interest and only a small part will be capital repaid.  However, as you get closer to the end of your mortgage, the capital repaid part will increase and interest part will reduce.  The monthly payments throughout the mortgage are calculated by the lender to make sure that, provided you pay them on time, your mortgage is guaranteed to be repaid at the end of the mortgage term.
  • Interest only.  As its name suggests, the only monthly payment you make to the lender is interest.  As a result, the monthly payment will be lower than for a capital repayment mortgage.  However, the amount you owe the lender will not reduce and at the end of the term you will still owe the lender the amount you borrowed.  You will therefore need to make sure that you have sufficient money at the end of the term to repay the lender in full.  This can be done by having some kind of investment plan which will enable you to save up enough to money to do this, but you are then reliant on the savings growing fast enough to equal the mortgage at its end. Interest-only mortgages are therefore much riskier types of mortgage than repayment mortgages, although they may still be appropriate where, for example, you are know for sure that you will be receiving a lump sum of money in the future.
  • A combination of the two.  Many property owners have had interest-only mortgages in the past (possibly with an endowment policy as the investment plan) but now want more certainty in repaying their mortgage.  Some lenders will allow a mortgage to be part capital repayment and part interest-only.
+ The mortgage product

Now that you have decided how much you will be borrowing and how you will pay it back, the next step is to decide the most suitable way of  being charged for borrowing the money, both in terms of the interest rate you pay  and the arrangement fees and other costs charge by the lender.  There are many different products to chose from and we will help you to find the one which is most appropriate for you.

  • Variable rate.   This is a lender’s standard rate if you decide not to choose a special rate.  It will go up and down as interest rates change.
  • Fixed rate.  If you would like to know exactly what your monthly mortgage payment will be for a certain period of time, then this is for you.  The lender  will fix your payments for a number of years which will mean you can be confident about your budget.  The lender will have tried to predict what  interest rates will be in the future and will base the fixed rate on those predictions.
  • Capped rate.  A capped rate is a variable rate which will go up and down,  but has an upper limit (the “cap”) which it cannot go above.  It may also have a lower limit (the “collar”) which it cannot fall below.
  • Discounted rate.  This is a variable rate which offers a reduced rate (the “discount”) for an initial period.  After this period, the interest rate goes back  to the standard rate.  It can be useful if you do not need the security of a fixed or capped rate, but want some help in the early years.
  • Tracker rate.  A tracker is a variable interest rate which automatically follows changes in a nominated interest rate, normally the Bank of England’s Base Rate.  The tracker is usually set higher than the interest rate it tracks (e.g. it may be 1.5% above the Bank of England’s Base Rate).  It may also have a collar (see “capped rate” above).
  • Flexible mortgage.  This allows a borrower greater freedom in the way the mortgage is repaid.  They may, for example, allow overpayments, underpayments, payment holidays or the facility of borrowing back any overpayments previously made.
  • Offset mortgage.  Offset mortgages are popular with people who have significant levels of savings which they would like to have access to, but  who also need a mortgage.  There are a number of different versions, but  the most basic offset mortgage gives you two accounts with the same lender – a mortgage account and a savings account.  You will not be paid  any interest on the savings account, but the lender will only charge you  interest on the difference between the two accounts.  For example, if you  owe £100,000 on your mortgage and have £20,000 in your savings account, you will be charged interest on £80,000.  Because interest rate on  mortgages are generally higher than on savings accounts, you are  benefitting by effectively getting the mortgage interest rate on your savings.  Also, because you are not actually being paid interest on your savings, there  is no tax on it, which is especially attractive for a higher-rate taxpayer.
+ Choice of lender

There are so many deals available from so many lenders that the choice can be bewildering.  Simply choosing the lowest interest rate is often not the best choice as arrangement fees, early repayment charges, valuation fees and a host of other permutations make the decision a minefield.  With the expertise we have gained over many years we can assist you with this decision and may be able to save you both time and money.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

For mortgage advice we can be paid by commission from the lender, or we can charge a fee of typically 0.5% of the loan amount.