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Mortgage? Remortgage? Contact this mortgage specialist for the best deal for you. No fee option Types of Mortgage Mortgages can be confusing, since there seem to be so many different types available. However, with a little research, it is possible to gain a sound working knowledge of the subject and an understanding of the terminology. Even armed with this information it makes sense to talk to Alan Dunn, Independent Mortgage Adviser. With the number of mortgage choices available – there are thousands from over 100 lenders – he is well placed to get you the type of mortgage that right for you . Some mortgage advisers choose from a panel of lenders, but Alan Dunn chooses from the whole of the market. Beware! Mortgages can be complicated and can contain conditions that you might not fully appreciate. Get help to avoid the pitfalls in the Mortgage Market. Whether you have a repayment or interest-only mortgage, you’ll have to pay interest to the lender. There are a number of options:– Standard Variable Rate (SVR) Some people take a mortgage with a variable interest rate – the rate goes up and down, usually in line with movements in bank base rates. Falling rates are good news, since the monthly payments go down, but of course rising interest rates mean increased payments. Most lenders offer a standard variable rate mortgage. Pluses:- · The chance to benefit from falling interest rates. Minuses:- · Rising interest rates mean higher monthly payments. · Lender’s variable rate may not be competitive. Discounted rate Many lenders offer variable rates with an initial discount for a period of months or years. After the initial discount period the mortgage changes to the Standard Variable Rate of the Lender Pluses:- · The chance to benefit from falling interest rates. Minuses:- · Rising interest rates mean higher monthly payments. · Lender’s variable rate may not be competitive. · Possible early repayment charges. Tracker A few years ago some lenders were criticised for being a bit slow to lower their variable rates after a bank base rate reduction, some times they didn’t lower it as much as the bank base rate fall, sometimes they didn’t bother to lower it at all. But when the bank base rate increased they were sharp enough to get their variable rates to move upwards. Unsurprisingly this led to criticism of lenders and most have introduced Tracker mortgages. A Tracker mortgage guarantees to move up or down by the same amount as the bank base rate. Cashback Some lenders offer new borrowers a variable rate mortgage with a cashback – a lump sum, which is normally a percentage of the loan, which is paid to you when the mortgage completes (starts). Pluses:- · Handy upfront cash payment. · The chance to benefit from falling interest rates. Minuses:- · Rising interest rates mean higher monthly payments. · Lender’s variable rate may not be competitive. · May have to pay back some or all of the cashback if you redeem the loan within a certain period. Fixed rate You can get a fixed interest rate mortgage, with a known interest rate for a set period. Most people choose to fix for between two to five years. Many fixed rates are lower than the standard variable rate, and usually the longer the fixed term, the higher the rate. Fixed rates are good for budgeting, since you know exactly how much you will pay each month for a set period. They also provide protection, should variable rates rise during the fixed period. However, if variable rates drop below the fixed rate, you could pay over the odds. Most fixed rates have early repayment charges during the fixed term, and possibly after the fixed rate runs out. This is a fine, which is often equivalent to several months’ interest, that you have to pay if you cash in your home loan before the end of the fixed term. And, in some cases, early repayment charges may apply for some years after the fixed period runs out. Pluses:- · Good for budgeting. · Rate may be lower than variable rate. · Choice of periods to fix over. · Protection against rising variable rates. Minuses:- · Don’t benefit from falling variable rates. · Hefty early redemption penalties (during and even after the fixed rate period) may lock you into the lender and loan for a long time. Capped rate Offers the benefits of variable and fixed rates. Great for budgeting as there is a maximum interest rate (the cap) you will be charged for a period of years. But if the lender’s variable rate falls below the capped rate, so will your rate, and you benefit from lower monthly payments. Some capped rates have a collar or floor, which is the minimum rate that will be charged for a period. In some cases, early redemption penalties may apply. Pluses:- · Good for budgeting. · Protection against rising variable rates. · Chance to benefit from falling variable rates. Minuses:- · Limited choice of loans. · Possible collar or floor below which the interest rate won’t fall. · Early redemption penalties may lock you into the lender and loan, for a long time. Current account and offset mortgages (CAM) Current Account Mortgages (CAMs) and offset mortgages allow you to run all of your finances through the same account. With a CAM, your current account, savings, mortgage, credit card and personal loans are all combined in one account and interest is applied at the mortgage rate, which is always higher than savings rates. So the money that would normally be in your savings or current account goes into your CAM instead to reduce your mortgage debt. So you pay less interest on this reduced amount, and your money is working harder. The offset mortgage works in a similar way to the CAM, but your mortgage, savings and current account are kept as separate products. So the saving and borrowing rates are offset against one another, but you can view your different ‘pots’ of money separately. Pluses:- · Very efficient way to manage your finances. · Pays off your mortgage quickly if always in credit. · Interest on savings applied at the mortgage rate. Minuses:- · May have to pay in all of your salary into a CAM thereby losing choice. · Can have restrictive entry levels. Combined types During the last few years the choice of types of mortgages available has grown. The types of mortgage shown above can be combined eg a Discounted Tracker with a Collared rate, or an Offset Mortgage with an initial discount period. As your mortgage is likely to be your single largest financial commitment, it pays to explore all your options, from lender to product type to repayment method. Alan Dunn is legally obliged to work on your behalf, without bias toward one mortgage provider or another. The whole of the market is searched for the most suitable deals for you, including some that you can’t get at your High Street bank or building society branches. Possible pitfalls like early redemption penalties and tied in insurances will be pointed out. These sort of pitfalls can often take the gloss off mortgages that have attractive headlines rates. Insurance There are a range of Insurances that either must be in force when a mortgage or remortgage is taken out. Click here to find out about the Associated Insurance Cover. Buildings Insurance All lenders require that the building that is mortgaged is insured against damage. Find out about Buildings Insurance here Accident Sickness and Unemployment Insurance People who have taken advantage of a mortgage to buy a property need to think about what would happen if they became ill or unemployed. Assistance from the Government in situations has been massively cut back over the last few years and they strongly recommend that all borrowers ensure that they have appropriate arrangements to cover them in these situations. Accident, Sickness and Unemployment Insurance can provide the necessary security and peace of mind. Click this link to find out about ASU insurance to cover them in the case. |
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