Mortgages Guide

A Guide to Mortgages
There are many different types of mortgages to choose from. The following will help you decide which mortgage will best suit you.

General Things to Consider

• Minimum and maximum borrowing – some providers will only lend certain amounts.
• Loan to value – This is the ratio between size of loan and value of property. So, for example if you require a £90,000 mortgage on a property valued at £100,000 the loan-to-value you require is 90%. Some lenders have specific limits on these.
• High Lending charges - This is a fee that is used to buy insurance to protect the mortgage lender if you borrow more than a given amount. Many mortgage lenders will lend you up to, say, 90% of the value of a property without this fee. But if you want to borrow more, the lender usually requires you to pay for insurance to ensure that it will recover all its money if the property has to be sold for less than the amount of the mortgage. It must be noted that the insurance company will take recourse against the home owner even though the provider is compensated for the shortfall.poor credit .
• Rate – it is worthwhile shopping around to ensure you are getting a good rate to prevent paying over the odds for your mortgage.
• Wage criteria – some lenders will have minimum salary requirements. For any mortgage,payday loans the lender will assess how much they are willing to lend you based on your income and outgoings.
• Early repayment charges - If you repay (redeem) your mortgage at any time prior to the end of the mortgage term you may have to pay certain fees or an interest penalty (redemption penalty). If the mortgage is repaid in the early years there may be a heftier penalty, a product penalty. An extended redemption tie-in means that this penalty will continue to be payable beyond the initial term of the mortgage.
• Portability - A mortgage which can be transferred between properties with the same lender when you move house.
• Overpayments - This is when monthly repayments to a mortgage are increased, meaning that the mortgage is repaid before the end of the mortgage term.
• Insurance - Lenders insist that the property is adequately insured with a suitable buildings insurance policy, covering against the usual risks. In addition to this you will need contents insurance to cover theft, fire, damage etc. Another form of insurance is a mortgage payment protection plan that is designed to offer income protection against unemployment, sickness and redundancy.
• Life assurance – It is prudent for life assurance to be taken out to cover the value of the loan, allowing the mortgage to be repaid should you die.
• Legal costs - Usually a solicitor or licensed conveyancer needs to be appointed to deal with the legal aspects of purchasing a property which will incur costs. You should ask for an estimate of these costs before you instruct the legal expert.
• Valuation / surveys – It is a legal requirement that the lender has the property valued to ensure that the property is an acceptable security. The mortgage lender's surveyor will need to inspect and value the property. The cost, if any, of this valuation depends upon which lender you choose and the value of the property.
• Arrangement fees - Most lenders charge an arrangement or application fee for a mortgage. Some lenders will allow you to add this to the mortgage and the fee varies depending on the lender chosen and the mortgage offer.
• Stamp Duty - This is a government tax based on the property's purchase price and is calculated as follows: Up to £120K = Nil, £120,001 - £250,001K = 1%, £250K - £500K = 3%, £500,001K+ = 4%.

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Fixed Rate Mortgage
If you choose a fixed Rate Mortgage your monthly repayments will not change for the period of the fixed rate, regardless of the interest rate in the marketplace. This may be important to you if you have a limited budget as you are protected from rising interest rates. However, if the variable rate falls below the fixed rate level, your repayments will not fall. At the end of the fixed rate period your mortgage will usually be converted to a variable rate.

Fixed rate deals are available over varying periods. Some are as short as a few months and other over many years. Often with fixed rate deals there will be a penalty if you change your mortgage or pay it off before the fixed term ends. This is known as a redemption tie in. The amount of the penalty is usually a percentage of the outstanding mortgage. The earlier you opt out of the mortgage, the more you will have to pay. This can equate to thousands of pounds. Some fixed rate deals have extended tie ins, meaning the penalty extends past the initial fixed rate period. There are products available without these penalties.

Capped Rate Mortgage
A capped Rate Mortgage has a maximum interest rate for a given term. The interest rate you pay cannot go higher than the agreed capped rate; thus you know the maximum amount your monthly repayments could rise to. However, if the basic interest rate falls below the capped rate, repayments will also reduce.

Sometimes these capped Rate Mortgages also have a ‘collar’. This means the lender has set a minimum level below which the rate you pay will not fall.

Discounted Rate Mortgage
A discounted mortgage offers you reduced repayments for a given term. The lender gives a discount from their standard variable rate. For example, the variable rate may be 5% with a discount of 1%, making your initial interest repayment rate 4%. If the variable rate on which your discount rate is based falls, your repayments will fall. However, if the lender's standard variable rate rises, so will your repayments. Whilst a discounted rate may be helpful initially, you should consider how much your repayments will be when the discounted period ends.

Often with discounted rate deals there will be a penalty if you change your mortgage or pay it off before the term ends. This is known as a redemption tie in. The amount of the penalty is usually a percentage of the outstanding mortgage. The earlier you opt out of the mortgage the more you will have to pay. This can equate to thousands of pounds. Some fixed rate deals have extended tie ins meaning the penalty extends past the initial deal rate period.

100% Mortgage
A 100% mortgage offers you a borrowing of 100% of the value of the property, i.e. no deposit is required. Rates may be fixed, variable, discounted or capped (see these product guides for more information). Opting for a 100% mortgage means that you could risk facing a negative equity situation if house prices fall. You may also be charged an above-average interest rate and a mortgage indemnity premium.

Self-certification mortgage
Self-certification mortgages are available for clients who cannot verify their income as it may come from a number of sources, or they may not have been trading for long enough to have the required number of years accounts, or they may have a low basic salary but achieve bonus or commission payments or a regular second income. The lender will ask for details of the borrower's income, but they will not require to see proof of total earnings. Other terms will depend upon the lender's requirement at the time and in accordance with the rates prevailing in the market place.

It is a criminal offense to lie about your income.


Variable Rate Mortgage
A variable Rate Mortgage is one in which the amount you repay increases or decreases in line with any interest rate changes. This means that you cannot predict the monthly cost of the borrowing, which could cause financial concerns within the mortgage period. In times of falling interest rates, variable Rate Mortgages are beneficial as your mortgage repayments will reduce. However, if interest rates rise, then so will repayments.

Buy-to-Let Mortgage
Buy-to-let mortgages are provided for property purchases or remortgages for investment in the private rental sector. Assessment of borrower affordability can be based on projected rental income and/or earnings, dependent on the lender's individual policy. Some lenders may also take the applicant’s existing mortgage or other loans into consideration.

Buy-to-let mortgages can be fixed, capped, discounted or variable. Some may be base rate trackers, or have cashbacks or flexible features.

Current Account and Offset Mortgages
A current account mortgage allows you to operate your mortgage borrowing through a current account. In effect, it is like having a large overdraft. Thus, if you had a mortgage of £100,000 and £1,000 credit in your account your balance would show as £99,000 in the red. You may be required to pay your salary into these accounts.

These mortgages can allow you to pay off your mortgage early as any cash going into the account, such as salary, reduces your outstanding debt. Therefore, if you are disciplined you can save on the amount of interest you repay and the length of your mortgage. Many lenders show you on a regular basis whether you are ‘on track’ or above / below track with your payments.

Some providers also allow loans to be attached to these mortgage accounts, with interest charged at the same rate as the mortgage. This means all your debts are held centrally in one account.

With an offset mortgage you keep your balances e.g. mortgage, savings, current account etc in separate accounts but all balances are offset against each other. This means that the credit balances allow that much of the mortgage not to accrue interest.

With some of these mortgages you can make underpayments – this means if in one month you have an unexpected expense you can pay less off your mortgage. Payment holidays may also be available whereby you pay nothing for a month or so; over-payments can also be made.

Most current account and offset mortgages are variable Rate Mortgages whereby the amount you repay increases or decreases in line with any interest rate changes.

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Base Rate Tracker Mortgage
A base rate tracker mortgage will be based on the Bank of England base rate and a possible loading for a set period or for the term of the loan. The rate payable will alter in line with any change to the Bank of England base rate.

This means that you cannot predict the monthly cost of the borrowing, which could cause financial concerns within the mortgage period. In times of falling interest rates variable Rate Mortgages are beneficial as your mortgage repayments will reduce. However, if interest rates rise, then so will repayments.

Cashback Mortgage
A cashback mortgage provides a cash rebate on completion of the purchase. The sum is either a percentage of the advance or fixed. This cashback could help you to cover some of the expenses of setting up home, but this bonus is often subject to higher repayment rates and may include penalties for repaying the loan early.

Cashback may be offered on fixed, variable or capped Rate Mortgages. See these guides for more information.

Flexible Mortgage
The main feature of a flexible mortgage is the facility to make extra payments when you have extra money. You may also be able to reduce monthly repayments or even take repayment holidays, although you will normally have to build up a reserve through making overpayments before this arrangement is allowed. Such mortgages are usually offered on a daily interest basis. Flexible mortgages usually provide a loan drawdown facility that allows you to borrow extra funds at a set predetermined rate.

Payday Loan

Simple 2-step process for quick and convenient payday loans.

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