At any one time there may be well over 2,000 different
mortgage options, only some of which will meet your needs.
We use powerful computer databases to sort through the
vast range of mortgages and identify the best ones for
you, in terms of their features and benefits, and also
your own personal circumstances.
There are several elements to be considered when choosing
a mortgage such as -
The interest rate charged now - and
in the future
Charges for early redemption of the
mortgage
The Mortgage Indemnity Guarantee Premium
Whether to repay capital and interest
or interest only
Selecting the right insurance policy
It is important to assess whether the repayment will be
affordable in the future should the rate rise well above
the current low rates that have been maintained for some
time. However, it is not that long ago that interest rates
were over 15% - that is nearly three times the current
rate.
You can therefore use the attached Mortgage Cost Analyser
to assess these potential costs and how a variation in
the Mortgage Term, Mortgage Amount, Growth Rate and Interest
Rate affect the actual costs that you pay.
As an independent financial adviser, who is registered
with the Mortgage Code Compliance Board, we are in the
best position to ensure that you select the mortgage that
best suits you. We have technology in place that enables
us to search the entire mortgage market in a matter of
seconds and rank the results in terms of cost, affordability,
maximum loans available and various other criteria.
To help you understand the mortgage market, here is a
description of each type of mortgage scheme.
There are two elements to a mortgage :-
How the interest is charged
How the mortgage is protected and repaid
Variable Interest
Variable rate is where the rate goes up and down in line
with external influences such as the bank base rate. However,
you should be prepared for rates to increase during the
mortgage term and they can change by a factor of three
or even more.
Reduced
Most mortgage lenders offer some form of variable rates
with an initial discount for a period of months or years.
Generally, the longer the reduced or fixed period, the
more you pay.
Fixed
Fixed Rate Mortgages can have the interest rate from just
a few months to the entire 25 years. Many fixed rates
are lower than the standard variable rate, but with the
longer the fixed term fixed rates, the interest can be
higher than the current mortgage interest rate. You are
gambling the interest rates will rise much higher that
your Fixed Rate in the long term.
Fixed rates mean you know exactly how much you will pay
each month for a fixed period but bear in mind that if
interest rates drop below your Fixed Rate you will be
paying more money. Beware of early redemption penalties
which are several months' interest payable if you cash
in your mortgage early.
Capped
This means that, despite the fact that interest rates
may well rise, you are given a rate beyond which you not
be will be charged for a period of years or even until
the end of the mortgage period. Capped rates can have
a "collar" which means they will not go below
an certain rate either for that period. Again, watch out
for early redemption penalties.
Cashback
This is effectively a bribe to get you to take out a mortgage
with that company. Be careful, though, as there are usually
changes in interest rates that mean it could be recovered
in part or in whole later on.
Repayment
With a repayment mortgage you pay part of the capital
with each payment and the interest on the outstanding
amount. Naturally the payment, which is normally fixed,
pays more capital and less interest as the debt reduces
over the years.
It is important to remember that, as the years go by,
with this method you actually owe less and less and ,
providing you continue to make all your monthly payments
in full, the loan will be paid off at the end of the agreed
term which you can decide but it is normally 25 years.
If move home or re-mortgage, you would have to take out
a new loan, and re-commence repayments.
Interest Only
With this form of mortgage, you only pay the interest
due to the lender each month and your debt stays the same
throughout the mortgage term.
However, the advantage is that the monthly payments to
your lender are lower than for a repayment mortgage, but
you will have to clear the debt at the end of the term
with either a profit-making life policy, and investment
like an ISA or from a pension fund tax free lump sum payment.
Endowments
An endowment is a life policy with an investment element
that will pay off the loan if you die before the end of
the mortgage term but will build a fund that is designed
(but not guaranteed) to pay off the mortgage by the end
of the mortgage term, if you survive.
You can select a With Profits policy that invests your
premiums and pay annual bonuses which will be added to
your fund. At the end of the term, there is normally a
terminal bonus before the final payout. With Profits policies
are usually safer and offer reliable growth, however,
bonuses and cannot be guaranteed.
With Unit Linked policies, your premiums buy stocks and
shares and, as the prices of these units are published
daily, you are able to see the value of your fund at any
time. As with all investments, the value of your fund
may go down as well as up but these generally produce
higher growth in the log-term, but with a higher risk.
Unitised With Profits is the halfway house between the
two where your premiums buy units but in a With Profits
fund, rather than the more risky stock market.
Any endowment policy is designed for the long term but
should your circumstances change, seek our advice before
you cash in your endowment as there are companies that
can offer higher amounts than the issuing life company.
These are called Traded Endowments and we will assist
you in getting the highest return.
Investments
Up until April 1999 it was possible to use a Personal
Equity Plan to pay off your mortgage and you are still
able to use existing PEPs for this purpose, but you can
now use an Individual Savings Account, better known as
an ISA with its tax benefits to create and investment
fund to eventually pay off your mortgage.
However, don't forget that this form of investment does
not include and life cover.
As always, the value of your investment may go down as
well as up but if you have any potential shortfall, we
can advise you on an alternative or additional source
of mortgage repayment.
Pensions
You can use the tax-free cash offered by a pension to
repay a mortgage and Personal Pensions give you certain
tax concessions that make them very cost-effective.
However, you should be aware that you are in fact using
money that may have been set-aside for your retirement
to clear the mortgage debt.
Other Options
You can use virtually any investment product to help repay
your mortgage including Unit Trusts, OEICs, shares or
you might even rely on an inheritance to provide the funds
to pay off your mortgage providing you are reasonably
sure that you will have sufficient funds in time to repay
the loan.
