Repayment mortgage
Under these arrangements you are required to make monthly payments which are made up of part capital and part interest. The structure of the repayment method normally means that during the early years of the mortgage, little capital is repaid. The rate of repayment accelerates over time.

With the written permission of the lender it may be possible to extend the term of the loan. Repayment mortgages are generally quite flexible and it may also, be possible to allow you to repay your debt early by increasing the capital repayment of the loan so decreasing the term.

Interest Only
These arrangements do not require you to make capital repayments until the end of the loan. The monthly payments to the lender are made up entirely of interest on your outstanding debt.

In order to clear capital, at the end of the loan term, you must have an amount equal to the outstanding debt. Most people achieve this by making regular contributions to a savings plan; this plan is targeted to accumulate an amount sufficient to repay the outstanding debt at the end of the mortgage term. Any such savings plan (e.g. Endowment Assurance or ISA plan) should be kept under regular review.

Flexibile
These are a newer style of mortgage arrangement. They offer you the option to increase or decrease your monthly payments (and sometimes even the opportunity to stop them altogether for specified periods. This flexibility is designed to assist you to manage your cash flow. Many flexible mortgages offer daily or monthly calculation of interest. This system could normally be expected, when compared with a more traditional mortgage, to reduce the overall amount of interest you pay throughout the loan term.

The latest addition to the mortgage range is a combined system of current, savings and mortgage accounts, sometimes known as ‘Offset Mortgages’.  The mortgage element will still be a repayment, interest only or flexible loan, but the amount of money in your current and/or savings accounts are taken into account when the lender calculates the interest due on your mortgage.

For example if you hold a savings account with a balance of £1,000, this amount will be considered by the lender when calculating the interest due by effectively reducing the total mortgage by an amount equal to your  savings.

Drawdown Mortgage
A ‘drawdown’ mortgage is helpful if you have a property that requires renovation or a new home build. You receive a basic amount, but as you complete renovation work on your home, further amounts become available for you to draw down as and when required.   

There are varying ways in which Mortgage interest may be calculated on your mortgage:

Variable
the interest rate you pay rises and falls in line with the bank of England base rate.

Fixed
the interest rate is fixed for a given time at the start of your mortgage normally from 1 to 5 years although this can be longer. Note that you may have to pay a higher interest rate when the fixed period finishes.

Discounted
the lender gives you a discount on its standard variable rate for a given time.

Capped
the interest rate is guaranteed not to rise above a certain percentage, but it may also have a ‘collar’, i.e. it will not fall below a certain rate. However there is normally a fixed timescale for the capped rate period.

Different lenders will offer you different incentives to take out a mortgage with them, for example:

Cashback
on completion of your mortgage, you receive back in cash a payment of some or all fees: the lender pays for your survey, or your legal fees, or will meet the stamp duty charges. The cash back could be paid as either a percentage of the mortgage amount or as a lump sum.

Some lenders will charge you an early repayment charge if you redeem your mortgage early, or want to pay off a part of it.

Please note where immediate offers such as these are provided it is common for lenders to charge you an early repayment charge should you repay your mortgage during the early years of its term.

In making your decision as to the type of Mortgage that will suit your circumstances, you should first decide which payment method best suits you. Whether it is to be a repayment, interest only or capital repayment. To help you decide on the method most suitable for you, you should take into account your attitude to risk. Only a repayment mortgage can guarantee, that your mortgage debt will be repaid at the end of the original mortgage term (assuming all mortgage payments are maintained properly).

If you are looking for a mortgage as a first time buyer, a new purchaser, a remortgage or any other type of mortgage we are available to offer you advice and assistance as to the best options available in today’s market which will suit your own requirements.

Payments to the lender on an interest only mortgage represent the interest due on the outstanding debt. In order to repay that debt then, you would normally use an additional savings vehicle. This is likely to be one that enables you to build a fund of money from which you can clear the mortgage at the end of the agreed term. The lender may also expect you to have sufficient life assurance cover to enable your next of kin to repay the debt if you die during the term of the mortgage.
The three most common savings vehicles used for mortgage repayment are:-

1. ISA: you can benefit from the tax concessions available within these plans. Under current legislation any income or gains achieved from your ISA plan are tax-free. It is from the proceeds of your plan that pay off your mortgage. An added opportunity, if your ISA performs exceptionally well, or you can afford additional payments to it, is that you may be able to repay your mortgage ahead of schedule. On the other hand, if your ISA does not perform well, you may not have sufficient funds to repay your mortgage. You should regularly review how your ISA is performing throughout the term, to ensure you are on track to repay your mortgage and be prepared for short term fluctuations in the value.

All types of ISA are free of capital gains tax. So, if your ISA increases in value, you make a 'capital gain', but you do not have to pay capital gains tax on this increase.

1. Pension: by using the tax-free lump sum facility available from your pension plan to pay off your mortgage debt, you can take advantage of the tax relief that may be available on pension contributions. You must remember that under normal circumstances the benefits under pension plans may not be drawn before age 50 increasing to 55 from 2010. Therefore the earliest likely date at which you could repay your mortgage debt would be 50 increasing to 55 from 2010.

If pension benefits are provided by your employer, these cannot normally be taken until you actually retire from that employment. If you are looking to pay off your mortgage earlier than when you retire then a Pension may not be the appropriate repayment vehicle for your needs.

Since part of your pension fund is being used to clear the mortgage debt, you should be aware that your income in retirement will reflect this fact as less money will be available for the provision of income. Careful consideration needs to be given to this repayment method. Please contact us to discuss your options in relation to your retirement plans

1. Endowment: These are Life Assurance policies that serve two purposes. Firstly they provide financial protection in case you die before the end of the mortgage term. Secondly, if you survive throughout the policy term, the investment element of the policy provides a lump sum (maturity value) that can be used to repay the outstanding mortgage debt.

The use of these arrangements has been very popular in the past but has received negative press coverage during in the 1990s. There is some suggestion that many of the problems were associated with poor advice when homebuyers first took out the endowment policies along side their mortgage loans. It must be understood that endowment policies are long-term investments, the value of which may rise and fall in line with the stock market. However over 25 years, they may yield more than the amount you need to pay off your mortgage although there are no guarantees available.

There are three types of endowment policies:

1. With profits: you share in the profit of the life company through which you buy the policy. This profit is added to the amount in your funds

2. Unit-linked: the value of your units rise and fall in line with the underlying funds into which your money is being invested

3. Unitised with profits: a new version of the traditional with profits concept that provides the ability to value the policy quick and allows the charges to be specified and collected in a similar manner to a unit linked plan.

Please note that none of the above methods are guaranteed to repay your mortgage at the end of the mortgage term.

If you have any questions or concerns about  your mortgage repayment method, please contact us.

Three factors determine the size of mortgage you can have:

1. The deposit you pay on the house: a lender would usually expect you to put down at least 5% of the purchase price of the house, though some lenders will consider a 100% mortgage

2. Your salary: generally, you can have a mortgage equivalent to 3.5 times your salary. If you have a joint mortgage, you could apply for up to 4.5 times your combined salaries, or 5 times the main salary, plus 1 times second salary.

3. The amount of any existing commitments you have: the amount of personal loans, hire purchase agreements may be deducted from the amount available for you to borrow.

The lender will require proof of your salary and will write to your employer for confirmation. If you include commission or bonuses in your salary amount, the lender would expect confirmation from your employer that these are regular payments. However, if you require a mortgage of less than 85% of the value of the property, the lender may allow you to self-certificate your income.

If you are self employed, you will be required to provide proof of your income, this may take the form of your own assessment of income (‘self certification’). Self-certified mortgages are designed to cater for people who are self-employed and have difficulty in showing that their earnings are enough to make the payments on the mortgage they are applying for, which may be because you have not been trading for long enough or have had more than one job, or rely on bonuses for a large part of your total pay.

Any attempt to exaggerate your income would be considered in a court of law as fraud for which the penalty would be a criminal record.

If your income is erratic, for example, is made up from commission or bonus payments a lender will usually need proof of your income, but sometimes, they will rely on your own assessment of income (‘self certification’). Self-certified mortgages were designed to cater for people who are self-employed and have difficulty in showing that their earnings are enough to make the payments on the mortgage they are applying for a large part of your total pay.

Don’t let anyone persuade you to overstate your income in order to get a very large loan. If you lie about your income, you could end up with a loan you can not afford. You will also be committing a fraud and could get a criminal record.

If you take out a mortgage for more than 90% of the value of your home, the lender will normally ask you to provide additional security to cover their potential loss should you default on the loan. The most common method of providing this additional security is for the lender to effect an insurance policy (the premiums for which you will have to pay). The lender uses the money received from the insurance policy to cover the costs they suffer involved in the repossession and resale of the property.

Following any claim the insurer will normally look to recover, from you, any payments they make to the lender. The amount they will try to recover would include any legal fees they have suffered during the process.

There are now very limited state resources for meeting mortgage payments. Insurance policies that pay out if you lose your job or are unable to work because of illness. Mortgage protection insurance policies generally pay out up to 12 months’ mortgage payments. They are frequently combined with other insurances such as critical illness or permanent health insurance.

In addition to your mortgage, one-off costs incurred at the time or purchase (or re-mortgage if you are changing mortgage lenders) will be:

Legal fees: unless you intend to carry out your own conveyancing, you will need to pay a solicitor or other suitably qualified person to complete the legal work

Land Registry fee: the Land Registry registers your ownership of the property

Searches: your solicitor (or you) will need to check to see if there are any plans for the neighbourhood which could affect the value of your property, such as the building of a new road

Survey and valuation: the lender will insist that a survey and valuation is done on the property. You should think about a more comprehensive survey to check for structural or other defects

Stamp duty: all transfers of property of £125,000 or over attract stamp duty. For property transfers between £125,001 and £250,000 stamp duty is charged at 1% of the property price, for properties between £250,001 and £500,000 then the rate is 3.0%. The rate of Stamp duty for transfers of property over £500,001 is 4%.

A CAT standard mortgage meets the requirements set up by the government for fair Charges, easy Access and decent Terms.

To achieve the government’s mortgage CAT standard:

1. All fees must be explained from the beginning

2. Interest must be calculated on a daily basis

3. The interest rate must be no higher than 2% above the Bank of England rate

4. No early repayment charges for variable rate mortgages

5. Repayment charges on fixed or capped mortgages can only be charged a) during the lower rate period b) at no more than 1% of the loan for the remaining years

6. Maximum £150 arrangement fee if the mortgage is capped or fixed rate

7. No separate charge for mortgage indemnity insurance

8. The mortgage can move with you to another property

9. You can choose the day of the month you want to make payments

10. You can repay earlier if you wish

11. No products can be tied in to the mortgage (such as buildings insurance)

The terms must be fair, clear and not mislead

Contact your lender as soon as you realise you have a problem. Although your mortgage is secured on your home, lenders see repossession as the last resort: they stand to make more money from your mortgage than the sale of your home. Lenders will work out a plan with you to reduce your payments for a time or stop them temporarily, and work out a new term for your mortgage.

Please contact us for advice and assistance on your mortgage requirements

Your home may be repossessed if you do not keep up repayments on your mortgage.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST HOME.  HOME MAY BE REPOSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON MORTGAGE.