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Property
advice | Mortgage
guide | The best mortgage
Choose the mortgage type that best suits your requirements. To judge
this please read our complete guide to the mortgage type that may
be on offer to you.
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Simple and straightforward - you pay interest and capital
each month |
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If you pay on time for the agreed term you are guaranteed
to clear your mortgage |
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The interest element is larger in the initial years |
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Towards the end of the term you are mainly paying off the
debt |
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You can make lump sum payments off your capital You need to
change your payments when interest rates change |
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Your monthly payments only cover the interest not the debt
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To settle the actual debt you take out a separate investment
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This can be either an endowment policy, a pension plan or
an Individual Savings Account (ISA) |
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To clear the debt the investment must generate sufficient
income |
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Combines a savings policy with life insurance |
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If you choose a with-profits plan your monthly premiums are
part of a joint investment with others |
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Traditionally you were awarded an annual or reversionary bonus
according to performance plus a larger terminal bonus at the
end of the investment |
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Unit-linked endowment - your premiums are used to purchase
specific units in stock market linked investments. The growth
potential is larger than endowments but they also carry a greater
risk |
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Recent stock market performance has shown how risky these
plans can be |
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Many investors now face a shortfall at the end of the term
requiring additional funds to clear their mortgage |
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Interested
in selling your Endowment Policy? |
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You
maybe eligible for compensation if you were mis-sold an endowment
policy |
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Individual Savings Accounts offer the attraction of being
interest free. |
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These are now being bundled into all-inclusive mortgage packages. |
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Like endowment policies you can pay off your mortgage early
and possibly generate a tax-free lump sum if the ISA performs
better than expected. |
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The current state of the equity market needs to be considered. |
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These allow you to link your personal pension plan to your
mortgage |
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You use part of the tax-free lump sum it generates at the
end of the mortgage term to pay off the outstanding debt |
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The remainder must be used to purchase an annuity in the same
was as a standard pension plan |
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The annuity is used to buy a guaranteed annual income until
your death |
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The disadvantage is that you can only access this money when
you are over 50; and you can only use up a maximum of 25% of
the plan's value |
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Different from traditional mortgages, they give you more control
over your finances - but this can cause pitfalls. |
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If you make underpayments and take payment holidays, for example,
you debt increases. |
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You need to increase your monthly repayments or extend the
term of the mortgage to compensate. |
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Most flexible mortgages come with an initial offer period
- an introductory discount, fix or cap. |
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Lenders' Standard Variable Rates on flexible mortgages tended
to be higher than on their standard home loans but most are
now more competitive. |
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Many non-flexible mortgages now have some flexible features
such as penalty-free overpayments and daily-calculated interest. |
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Save
money and speak to an adviser NOW! |
The key features:
Every overpayment has an instant effect on the total amount
that you owe if interest is calculated daily rather than annually.
You can make regular or occasional extra payments without being subject
to any early redemption penalties. This enables you to pay off the
loan with less money and pay it off quicker.
You can make reduced payments for one or more months during a period
of reduced income or extra expenditure. Many lenders require you to
fulfil certain conditions before doing this; you also need to get
permission beforehand.
You can take a break from paying the mortgage for one or more months.
Some lenders limit the frequency of underpayments or holidays, some
only permit them after six, 12 or 24 months, and others do not permit
them in certain circumstances, such as redundancy.
You can withdraw money up to a pre-agreed borrowing limit, or equal
to the sum of overpayments made previously. Since interest is charged
at the same rate as the mortgage, this is a cheaper way of borrowing
money than through personal loans or credit cards.
With a current account mortgage, all your accounts - savings, mortgage,
current account and even loans and credit cards - are pooled. You
have a single cheque book and a debit card.
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There are no monthly repayments to reduce your debt. |
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Instead, any money paid into this one account reduces the
amount you owe (lenders normally stipulate that you pay your
salary into the account). |
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All borrowing is charged at the mortgage interest rate, which
is lower than personal loan rates and credit card rates and
overdraft charges. |
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Interest is calculated daily, so every day your current and
savings accounts are in credit - the interest on your mortgage
will be reduced. |
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This could mean paying your mortgage off early. |
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The interest is calculated on the difference between the combined
balance of your current and savings accounts and your mortgage
balances. |
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Save
money and speak to an adviser NOW! |
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Offset mortgages work in a similar way to current account
mortgages, except that your separate accounts are linked rather
than completely amalgamated. |
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You can still use your savings to reduce your debts. |
With a current account mortgage, all your accounts - savings, mortgage,
current account and even loans and credit cards - are pooled. You
have a single cheque book and a debit card.
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There are no monthly repayments to reduce your debt. |
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Instead, any money paid into this one account reduces the
amount you owe (lenders normally stipulate that you pay your
salary into the account). |
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All borrowing is charged at the mortgage interest rate, which
is lower than personal loan rates and credit card rates and
overdraft charges. |
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Interest is calculated daily, so every day your current and
savings accounts are in credit - the interest on your mortgage
will be reduced. |
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This could mean paying your mortgage off early. |
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The interest is calculated on the difference between the combined
balance of your current and savings accounts and your mortgage
balances. |
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If you run your own business, you might not be able to prove
your income in the usual way. Most lenders require three years
of accounts. |
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If you haven't been in business that long, you may find it
difficult to get a mortgage. |
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Even with three years of accounts, your accountant will have
minimised your declared income for tax purposes. |
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Your lender may determine your borrowing not on your ability
to pay but on a figure that doesn't accurately reflect your
earnings. |
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Self-certification lets you declare your income without accounts
to back them up. You or your accountant provide a letter stating
your income and ability to meet the repayments. |
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You will need to provide a large deposit |
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If you are self-employed, don't automatically assume that
you need a self-cert mortgage. |
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Many lenders have relaxed their rules, enabling you to avoid
the sizeable fees and redemption penalties that can make self-certification
costly. |
Financial difficulties in the past may not reflect you ability to
repay a mortgage today, but it is hard to find a mortgage if you have
a poor credit record.
Problems include previously incurred mortgage arrears, a county court
judgement (CCJ) issued for unpaid debts, or been declared bankrupt.
If your debts were large or are unpaid, you may need specialist help.
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Specialist lenders (some from the mainstream) can help - at
a cost
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Interest rates are high: specialist lenders usually charge
between 2% and 4% above base rate. |
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You will need to put down a big deposit. |
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A way to avoid higher interest rates is to try and take out
a joint mortgage with someone with a clean credit record or
find a mortgage guarantor. |
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If you keep up with your mortgage and other payments for two
years or more, your credit rating will be repaired, enabling
you to remortgage. |
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To discourage this, specialist list lenders may cut their
rates after an initial period and can also charge redemption
penalties, even after any discount period ends. |
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Buy-to-let Mortgages vary - you can get an introductory discount,
fix or cap - but you revert to the lender's Standard Variable
Rate after this period. |
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The amount that you can borrow is determined by the projected
rental income. |
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To work this out yourself - on average, your rental income
will need to exceed your monthly repayments by 25%-30% |
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Expect to pay a deposit of around 20% of the purchase price. |
Useful links
Selling your
home
First time buyers
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