Time to talk mortgages

Types of Mortgages

Repayment

You repay some of the capital you have borrowed + some of the interest on the loan

Your aim is to pay back the original loan amount + interest over an agreed term

This allows you to build equity over a period, and own your home

If you move before the duration of your mortgage, you can repay the original loan, take out another mortgage, or transfer the deal you have over to a new home

Geek alert!  This process is called “porting your mortgage”

Suitability:  Repayment deals are great for homebuyers looking to build equity overtime with an aim to own the property outright.

Interest Only

You only pay the interest on a mortgage amount monthly

You do not pay towards the capital borrowed monthly

The capital loan amount is paid back in full at the end of the mortgage term agreed.

Your monthly payments will be lower than a repayment mortgage

If you cannot pay the full loan amount at the end of the agreed term you may need to sell the property to cover what you owe

Paying back interest on the whole loan, rather than a repayment option of the loan amount which decreases your debt, you will end up paying more over time with an interest- only deal

Pro’s

This type of mortgage is great for people who wish to have lower monthly payments but know long term they will have the funds to pay off the mortgage in term agreed.

Fixed Rate

Did you ever play stuck in the mud as a kid?

It is not complicated!

The interest rate is fixed for a set amount of time and is not affected by the Bank of England and how it affects the fluctuations in the market

You will be locked into a set rate for a set period

If you leave, you will be required to pay an exit fee

The fixed rate period (IRP) is first two, three or five years of the term. You will have a structure set rate over these time period. This ends when the fixed term ends.

Pro’s:

Fixed rate mortgages are great for first time buyers who are budgeting for the first few years

Fixed rate mortgages provide security

Fixed rate mortgages are great for budgeting

Fixed rate mortgages are great for homeowners who want to lock into a base rate, if they suspect the rate will rise

Fact: When you take out an interest only mortgage you can lock in your mortgage interest rate which is super if you suspect The Bank of England base rate will increase!!

Cons:

Once you are locked in, it’s difficult to switch due to the hefty penalty you will incur. You will also not benefit from a fall in interest rates

Fact: When you come to the end of the fixed rate period, you get switched to your mortgage lenders variable rate, which is going to be higher mostly. Most people at this point opt to remortgage to get a better deal.

Variable Rate

Oh my word yes there are moooooooooooooore… Simples!!

The rate is not fixed, it can rise or fall at any time

How much you pay each month is subject to change

The rate is affected by the Bank of England base interest rate and other denominators

There are two types of variable rates too!

The two types of mortgage variable rates:

Standard Variable Rate (SVR):

Interest rate is set by the lender

Lender can increase or decrease the mortgage rate you pay monthly

Pros:

SVR gives you freedom to overpay, and leave your mortgage without high penalties

Cons:

SVR makes it difficult to budget for the future

Variable Rate Mortgages best are best for:

Homeowners with a desire to switch mortgage products with ease to suit their changing needs and lifestyle

Tracker Mortgage

A mortgage that allows you to link your mortgage and your savings together, this reduces the amount of interest you are charged

The value of your savings is offset against how much you borrow on a mortgage loan, you are only charged interest on the amount left over

The mortgage is a rate applied to a reduced amount covered by your savings, so naturally the interest will be lower

Let’s break it down:

If you have £15,000 in savings, and a £100,000 mortgage, you would pay interest on £85,000. The interest rate if set at 3% means you will pay £2,550 in interest per year.

Con: When you off set your savings, you are unable to earn interest

Pro: You do not pay tax on your savings when you offset your mortgage, beneficial for those in a higher tax bracket.

Who is suitable for an offset mortgage?

Let’s off set this mother!

Homeowners with savings, especially those in a high tax bracket. Or if you are a relation who wishes to help a first-time buyer, some lenders will allow you to offset your savings to help a friend, or relative to access a better mortgage rate.

Bring out the big guns!

Flexible Mortgage

What is a flexible mortgage?

  • Ooooh lets stretch!
  • A mortgage that gives you the freedom of how you repay the property loan
  • Options can include:
  • Take a payment break
  • Borrow money back
  • Interest rates can be calculated daily
  • Overpayment option
  • Underpayment option

Let us just break this down a little further to avoid any confusion:

1. Payment breaks: this gives you the ability to freeze payments for a month or two – great if you are anticipating a dip in your income. Be aware interest is still charged during your break, and you will need your lender to approve a freeze in payments which is deemed more acceptable if they have evidence of overpayments.

2. Borrow back: If you have overpaid during your mortgage term, some company lenders will allow you to borrow back. Now the purpose of overpaying is to reduce interest, but if you needed money to pay for something unforeseen this flexible option allows you to release funds you have already put toward your mortgage. This is actually a good way to say money because there is a reduced rate of interest overpaying into mortgage as the interest is usually greater than paying into a savings account.

3. Interest calculated daily: Having your interest calculated daily works out less expensive than paying for interest monthly or yearly. The interest calculation worked out for the next day is calculated off your reduced payment, paid the day previous. If you can overpay one day this works out even better for the interest you pay as it has a direct lowering impact on your next daily charge.

4. Overpayment: this means you are paying more than the agreed amount. Most people will pay a lump sum if they have any spare money to reduce the overall sum with the intention of lowering interest rates

5. Underpayment: an under payment needs to be agreed by a lender and is usually agreed on a period where you have overpaid enough you cover a period of under payment

95% Mortgage

What is a 95% mortgage?

A mortgage loan where you borrow 95% of the loan with only a 5% deposit

Example: With a deposit of £12,500 you could secure a loan of £237,500

Cons:

A lesser deposit means there is a greater risk of falling into negative equity, because these lenders charge a high interest rate on a 95% mortgage loan to cover a potential loss.

This makes it difficult to build up equity in a home, thus making it challenging to remortgage when the deal ends

Pros:

This type of mortgage is useful if you are struggling to save for a larger deposit

Who is best suited to a 95% Mortgage?

Are you a non-saving party animal in need of a mortgage, or simply someone on minimum wage struggling alone?

This could be the winning ticket!

Capped Mortgage

What is a Capped Mortgage

A capped variable rate mortgage price that will not rise above a certain rate

Available most commonly on a tracker mortgage or SVR mortgage

Not a common mortgage for lenders to offer

Pros: The repayments will not rise to a level you cannot afford. You are protected from high a rate increase

Cons: Many capped mortgages have something known as a collar, which is another cap that prevents your rate from falling below a certain level. You will not benefit from a low rate, if it falls.

Who is suited to a Capped Mortgage?

Homeowner who do not wish to protect themselves against rates rising and are willing not worried by having a capped rate even if rates fall.

So many options…more ways than one to build your dreams!

Joint Mortgages

What is a joint mortgage?

A mortgage loan taken out with one or more person(s)

Each person is named on the loan stating the equity split

Each person is responsible for paying for their share of the mortgage loan

Joint mortgages are open to couples and groups

Most mortgage types give you the option for joint deals

A joint mortgage allows you to put incomes together to buy a more expensive property

Each person’s earnings, credit history, and monthly spend are calculated to see how much you can borrow to create a combined offer

Having a combination of savings can help pay a higher deposit giving you access to better mortgage rates and terms

Help to Buy Mortgages

So why not? It must be brand new, so its economical, modern, forefront of technology and scheme that’s designed to get you to home ownership.

So, we’ve been there at the start, not just this scheme but all the schemes, reiterating our stance on experience, pedigree and knowledge and that’s why we are proud to work in focus groups supporting Homes England.

CLICK HERE FOR MORE INFO

Buy to let…

What is a buy-to-let mortgage?

You buy take out a mortgage on a house with the possibility or intention of being able to let out your property.
What are the key differences with a residential mortgage (a property you inhabit) and a buy to let mortgage?

Buy to let

1.The amount you borrow it not assessed on just your income
2. Lenders will consider the amount you are expected to earn as an income from tenants
3. A lender will usually require annual rental payments to be 125% of the mortgage
4. The fees and interest rates are typically higher
5. The minimum deposit required to put down is between 20-40% of the property’s value

What types of mortgages are available for buy to let?

Interest only and repayment buy to let options are available
Most landlords opt for an interest only option to reduce monthly payments
A repayment buys to let mortgage is a better option to void paying off a huge amount later down the line

Buy to let mortgages eligibility:

Good credit history ideally
Required income as normally this will be taking on the income of a second mortgage
Most lenders will not take on first time buyers for a buy-to-let loan
For more information on the best way to apply for a buy-to-let mortgage, we can easily guide you step by step through a deal on your selected property choice. We make all application processes simple by walking you through the process based on your needs.

Get In Touch

to see how we can help you on your mortgage journey please get in touch.

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