|
Capital Repayment Mortgage
This could be called either a repayment or capital and interest loan. This mortgage is designed to fully repay the initial sum over the term of the loan. The lender calculates the monthly payment required which will be part capital and part interest. In the early years the majority of your payments will be interest and the balance reduces slowly.
|
| |
|
Interest Only mortgage
As the name suggests, you only pay the lender the interest due each month on your mortgage. You do not make any capital repayments and the balance of your mortgage will remain constant and does not decrease. It is your responsibility to maintain some vehicle or plan which will repay the debt at the end of the term. You could actually utilise any method you choose, ensuring that the loan is repaid on time will be your responsibility not the lender's. |
| |
|
Standard Variable Rate (SVR) mortgage
This is the lender's "normal" mortgage interest rate. Each lender sets their own SVR, which then may vary according to the Bank of England rate changes. Most discounted rates are based on the SVR. If you start your mortgage on a fixed or discounted rate then you would normally revert to the SVR once your special terms have expired. Depending on any early repayment charges you may then decide to move your mortgage to a new special deal and lower your payments. |
| |
|
RE Mortgages
A re-mortgage involves moving a current mortgage to a new lender. This can also include raising extra capital by increasing the loan size. |
| |
| Information to consider about mortgages |
|
|
|
| The Rest Period |
This refers to when the interest on your loan is calculated. It could be once a year (yearly rest) each month (monthly rest) each day (daily rest) This is mainly beneficial for repayment loans when the debt is actually decreasing and has no effect for interest only loans.
For repayment loans it would be beneficial to have a monthly rest account as the interest owed is recalculated each time you make a payment and reduce your debt. For people with a current account flexible mortgage with an active transaction pattern, daily rest would be more useful.
Yearly rest is an outdated method of calculation but is still widely used amongst lenders. They calculate the interest due at the beginning of each year and effectively ignore capital payments you make until the next review date in 12 months time. |
|
| Tracker Rates |
Tracker rates are now commonly available on a wide variety of mortgages. Essentially, they track the Bank of England (BoE) base rate. This differs from the SVR above which lenders are at liberty to change to suit their own requirements. The 'tracker rate' can only change when the Bank of England rate changes, for some a much fairer scenario.
Tracker rates tend to carry an additional fixed interest rate that the lenders charge. For example BoE plus 1.00%. You would pay the BoE base rate plus 1% that the lender charges on top. Overall, this can be cheaper than opting for the lenders SVR.
|
|
| Discounted Variable Rate |
This is based on the SVR less a fixed discounted percentage. You pay the reduced rate for the period of the special product offer. Most lenders have a good selection of discounted rates over different terms. If rates change your 'discounted' rate will also change; either up or down.
|
|
| Fixed Rates |
This option will fix your interest rate for a set period of time regardless of movements in interest rates during the same period. This provides certainty in knowing the payments will not change, but can be a disadvantage if interest rates subsequently reduce, leaving you at the higher rate.
|
|
| Capped Rates |
This is a style of fixed rate but with the advantage that you could benefit from further interest reductions. Capped rates are not widely available. Initially the rate charged is capped at a certain level for a set period of time.
This means that if interest rates rise your payment will increase but only as far as the capped level. However, if rates fall below the capped rate, your payments will reduce. Capped rates are generally more expensive than fixed rates over the same period of time.
|
|
| Cashback |
This type of deal will give you back a percentage of your loan as a cash sum. Because you have received such a large benefit initially, the interest rate charged on your mortgage will generally be the SVR or an even higher rate. There will certainly be an early repayment charge with this type of loan.
|
|
| Flexible Mortgage |
These are a fairly new type of mortgage but more lenders are adopting it as an option. The rules and features will vary from lender to lender as the account is quite complex.
Generally lenders will allow overpayments, underpayments, payment holidays and the ability to have access to previous overpayments. Some lenders attach current and savings accounts to the loan or even credit cards and personal loans. As the debt is secured on your property, the interest rates charged should normally be lower than on other unsecured options. |
 |
|
Many schemes allow you to use savings accounts to offset against your main mortgage:
Example £70,000 loan less £4,000 total savings £66,000 interest charged on net amount Some lenders will grant you an overall mortgage credit facility at outset.
You may then choose to spend some of this on virtually any legal purpose you choose. You will be charged interest at the prevailing rate but do not have to "apply" each time you need access to the funds, as this has been agreed at outset.
|
|
|
| Early repayment charges |
Most schemes, not all, will have some kind of early repayment charge. This fee is payable when you repay some or all of your mortgage within a specified period. It is generally expressed as a percentage of the amount repaid or a certain number of months' interest.
Many lenders will now allow part reductions of up to 25% of the initial loan without incurring an early repayment charge. If your scheme is portable, you may be allowed to "port" your special terms to your new property and thus not incur an early repayment charge. All lenders apply different criteria so you should check beforehand.
You should be aware that early repayment charges may still apply after the initial discount period has expired. |
|
