Mortgages
For most people, your home will be the largest single investment you will ever make, so making the wrong decision can become a very expensive mistake. Taking the wrong mortgage can end up costing thousands extra over the lifetime of the loan, and what appears to be the cheapest on day one will not always prove to be so over an extended period of time.
Furthermore, to add to the confusion, there are now a bewildering number of mortgage types available to select from.
We've written an overview of some of these below, but to make a truly informed decision; call us on 01983 811505 and ask for an appointment with one of our advisers.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Repayment Mortgage
This is the simplest type of mortgage. The payments you make to the lender every month pay off both the capital and the interest from the loan. Provided you keep up the payments, you are guaranteed to pay off the loan by the end of the term agreed (for example 25 years).
The lender calculates your monthly repayments depending on the amount borrowed, how long for, the interest rate & how the rate you have chosen is set.
Interest Only
Don't you mean endowment mortgage?
For many people, interest only mortgages are called 'endowment mortgages' or even 'pension mortgages', but strictly speaking these names describe an interest only mortgage plus the method by which it is repaid. In other words, an endowment mortgage is an interest only loan that is repaid by the proceeds of an endowment policy etc.
How they Work
An interest only mortgage is where the lender (a bank or building society usually) only charges you interest on the loan you've agreed. You don't pay the capital back until the end of the mortgage. The lender will usually ask you at the outset, to provide an investment plan of one type or another to repay the loan at the end of the term, such as an endowment policy or ISA savings plan, but sometimes they will leave the repayment plan entirely up to you.
Every month, you then pay this interest to the lender for the duration of the loan. The lender calculates your monthly repayments depending upon how the rate you have chosen is set. At the end of the loan period, the lender will expect the initial capital they lend you to be repaid in full by whatever means you have arranged.
Flexible Mortgage
The flexible mortgage is a relatively new type of mortgage, or at least new in the UK. It was invented and has been used in Australia for many years, but is now growing in popularity in this country as more and more lenders adopt it.
A bit of background
The traditional UK mortgage has been with us for many generations. It was designed with the assumption that people had full time employment and could therefore cope with set monthly payments for a 25 year period. However, as many people have discovered, the traditional mortgage does not always cope well with modern employment trends, such as contract working, self employment, job sharing and part time work.
This is where the flexible mortgage comes in. It has the facility for both over and underpayments built into the loan. What this means is you can overpay your mortgage when finances allow (pay rise, bonus, an inheritance etc.), and then, providing you have made overpayments in the past, underpay when finances are tight (job loss, change in circumstance etc).
A Generic Example
If you overpay your loan by £50/month for say five years on a flexible mortgage, that cumulative amount is then made available as a cash reserve for you to draw on at any time during the remainder of the mortgage term. This cash reserve can normally be drawn on for such things as, taking payment holidays or making large purchases. Indeed some lenders actually issue the borrower with a cheque book and encourage them to use the account as an all encompassing bank account. However the amount you can withdraw is limited by the original sum of the loan.
The main benefit of borrowing against your 'mortgage account' is that mortgages are usually the cheapest form of borrowing. In other words, you'll pay less interest on the amount you borrow!
If on the other hand, you overpay but never make any withdrawals, you can save a significant amount of interest over the life of the loan. This is because most lenders who offer this type of loan calculate the interest you pay on a daily basis (see what to look for), therefore any overpayment comes immediately off the debt and interest payments are adjusted accordingly.
Mortgage Protection
Mortgage Protection is a kind of Term Assurance specifically designed to repay, on death, during the term, the amount outstanding on a 'capital and interest' repayment mortgage. In other words, if the policyholder(s) die prematurely, the outstanding loan amount on the mortgage will be repaid in full.
Some policies have rider benefits, which are extra sorts of cover, added on to the principal life cover. Such benefits include:
- Waiver of premium benefit - the premiums are in effect paid for you in the event of defined incapacity due to illness
- Income protection benefit - a percentage of your income is paid to you if you cannot work at your usual employment
- Unemployment benefit - a variety of income protection benefit
- Critical illness cover - the benefit is paid before death on the diagnosis of life shortening disease (e.g. cancer). This benefit may replace the death benefit, or it may be paid as well
All these riders cost extra and are only paid subject to meeting tight criteria.
What will you have to pay us for this service
We as a company on a normal standard mortgage will not charge a fee. We receive our income from the mortgage provider only after completion of the mortgage. We will always discuss and confirm in writing if a case becomes difficult and clarify if a fee will be charged, this would be only after receiving your approval to continue.
How we act for you
We prefer our clients to give us instructions in writing to avoid possible disputes. We will, however, accept oral instructions providing they are subsequently confirmed in writing.
Any advice we give you will normally be in writing, but if given orally will be recorded on your file.
Where any recommendation we make, or transaction we undertake for you, results in a right to cancel the policy under certain conditions, we will advise you of these rights.
We will also tell you if you do not have a right to cancel the arrangement.
Contact
Once we have acted upon your instructions we will not normally give you further advice.
However, we may review our record of your mortgage and protection plans and contact you to suggest that we arrange a review meeting. We will, however, be pleased to advise you at any time should you require further assistance.
We like to keep our customers informed of products and services we offer which may be of interest to them, therefore, from time to time we may forward marketing material to you, or contact you by telephone.
Termination of this agreement
Terms of Business come into effect on the date you receive them from us.
You, or we, may terminate our authority to act on your behalf at any time without penalty. Notice of this termination must be given in writing by first class post. It will be deemed to be received two business days after being posted.
Any business currently being completed will be completed unless we receive your instructions to the contrary.
Any fees outstanding at the date of termination will be due within four weeks of the termination date.
Law
These Terms of Business are governed and shall be construed in accordance with English Law and the parties shall submit to the exclusive jurisdiction of the English Courts.
We are not limited in the range of mortgages we will consider for you.
We advise and make a recommendation for you having assessed your needs.
Before we provide you with advice we will give you information about our mortgage services.
Your home may be repossessed if you do not keep up repayments on your mortgage.