This page give some basic advice on mortgages. The full document can be found here.
Information here has been extracted from a third party source and True Blue can
not take any responsibility for inaccurate information or actions taken based on
information here. We highly recommend that you consult a professional to obtain
advice in this field.
Mortgage Types
Discount Interest Rate Mortgage
A variable rate, of interest, but set at a set percentage amount below the lender’s
standard variable rate, usually for a short period of time. At the end of the initial
period, the mortgage reverts to the lender’s variable mortgage interest rate. There
are often charges if you wish to pay back (redeem) your loan before the end of the
discounted rate period. In some cases these charges also apply for a short period
thereafter.
The main factor influencing the interest rate on variable interest rate mortgages
is the base rate set by the Bank of England. There is, however, no guarantee that
a change in the Bank base rate will necessarily mean a change in mortgage rates.
A tracker interest mortgage rate is set at a certain percentage above or below Bank
base rate, and this percentage difference is fixed – so if the base rate drops by
0.25%, your Tracker Mortgage rate drops by 0.25% too and vice versa.
Fixed Interest Rate Mortgage
Set at a fixed rate usually an amount below the lender’s standard variable rate,
usually for a short period of time. At the end of the set period, the mortgage reverts
to the lender’s variable interest rate. There are often charges if you wish to pay
back (redeem) your loan before the end of the initial incentive period In some cases
these charges also apply for a short period thereafter.
Capped Interest Rate Mortgage
These rates limit your payments to fluctuations between a maximum and minimum interest
rate for a set period of time. These rates may only be available at certain times
depending on mortgage market fluctuations and may also incur a charge if you wish
to pay back (redeem) your loan before the end of the capped/collar rate period.
Offset of Current Account Mortgages
This is a fully flexible mortgage, which allows you to keep balances (such as the
mortgage, savings, and current account) in separate accounts, but, for the purpose
of interest calculation, all balances are aggregated. Credit in savings and current
account are offset against the mortgage, with interest only being charged on the
reduced balance. This type of morgage gives you total flexibility to access your
savings, whilst making significant long term savings on interest charges.
Cashback Incentives
With ‘cashback’ the lender usually gives you money when you complete on the mortgage.
In return you are usually tied to the standard variable rate for a set period, and
have to repay some or all of the cashback if you wish to pay back/ redeem your loan
sooner.
Useful Tools
Visit mortgageforce
for useful tools such as:
Post Move Budget Planner
This calculator works out how much spare cash you will have after all your monthly
bills and expenses.
Mortgage Repayment Calculator
This calculator works out your monthly repayments for Interest Only and Repayment
Mortgages.
Loan Calculator
This calculator gives an estimate of the typical amount that you can borrow based
on your income(s).
Repaying the loan
Whichever mortgage you choose, you will have to repay the capital (the amount you
have borrowed) and pay interest. Interest is usually paid monthly. How and when
you repay the capital depends on whether you arrange your mortgage on a repayment
or interest only basis. In making your choice, you should consider factors such
as your age, with a partner or on your own, dependants, the nature of your income
and so on. You should also review your life assurance and make provision to protect
your income to ensure you can continue to repay your mortgage as your home may be
repossessed if you do not keep up repayments on your mortgage.
Repayment Methods
1. With a repayment mortgage your monthly payments pay two things: the capital -
the loan itself - and the interest on the loan. In the early days of your mortgage,
the monthly payments are predominantly interest, with only a little capital being
repaid. Over the course of the mortgage, the amount you owe falls until you have
paid off the full amount you borrowed, including interest. Repayment is typically
over 25 years, although other periods may be arranged to suit your budget. One of
the benefits of a repayment mortgage, provided that you have maintained your payments,
is that with the gradual reduction in the amount that you owe, you know that your
mortgage will definitely be paid off at the end of the period you have chosen.
2. With interest only, your monthly outgoings are split in two parts. Part of your
payment goes to your lender to pay the interest on the loan. In addition, you will
make a separate payment into an investment plan, for example, an isa or pension
plan. By the end of your mortgage term, typically 25 years, (although other periods
may be arranged) you will still owe the full amount originally borrowed. However,
you will also have some form of investment plan, which should be worth enough to
pay off your entire mortgage.
3. With a part and part mortgage some of your mortgage will be repaid using the
repayment method, which is payments against the capital - the loan itself and the
interest on the loan. In the early days of your mortgage, the monthly payments are
predominantly interest, with only a little capital being repaid. The remainder of
the mortgage is on an interest only basis where your payment goes to your lender
to pay the interest on the loan.
The mortgage term
Traditionally, mortgages are arranged over a term of 25 years and you agree to repay
the loan by or at the end of the term. Shorter or longer mortgage terms can be arranged
- it all depends on how much you can afford and how quickly you want to finish the
mortgage.
When considering how long you want your mortgage to run, you should bear in mind
a number of points:
- Most mortgages are supported by earned income. You should think about how your income
may change in the future and arrange your mortgage term appropriately
- With a repayment mortgage, the longer the term, the lower your monthly payments
will be but the more interest you will pay in total, and vice-versa: the shorter
the term, the higher the monthly payments, but the less interest you pay in total
- If you take out an interest only mortgage and are relying on the returns of an investment
plan to repay the loan, you should ensure that the terms of both the mortgage and
the investment are sufficient to allow the investment to build up adequate funds
to repay the loan at the end of it’s term
- Whatever the term of your loan, since interest is paid on the amount of the capital
balance, less interest is paid in total on a repayment loan (where the capital reduces)
compared with an interest only loan (where the capital balance stays the same)
Early Repayment Charges
Most mortgages have early repayment charges, these are typically within the product
period. For instance, if you have a five year fixed mortgage, there may be a 3%
charge of the loan to be repaid if you redeem the mortgage within those five years.
Be careful! – some mortgages have redemption charges which are longer than the product
period, so when you revert to the lender’s Standard Variable Rate you still don’t
have the flexibility to move or remortgage without penalties. Always check your
options before agreeing to a particular product. A true blue consultant can provide
valuable advice to ensure you can avoid any such penalties wherever possible.
Useful Links
Our links section gives some useful links to those looking to buy a home, raise
finance and other financial information. Please note that there is no affiliation
whatsoever between True Blue and these websites. True Blue can not be held liable
for any content, opinions expressed or other content on these websites, or websites
that these link to.
BBC mortgage calculator
Advice Guide UK
Home.co.uk - buying guide
UK Government Advice on buying and selling your home
Channel4 advice on buying a home
Money Made Clear, financial advice including mortgages, loans, credit cards etc
UK Link Exchange
Mouse-Move.com - Use your mouse to Buy, Sell or Let a House Privately Online; advertise your property online anywhere in the world. No commission to pay, receive all enquiries direct to your personal email account, add 24 photos of your property. No agent charges! No hidden fees!
bizzii directory - Free uk link directory. Add your website to our directory free of charge. Seo friendly.