Each repayment contains some capital and interest. In the
early years, the monthly repayment is made up almost entirely
of interest. There will be a gradual reduction in the amount
of capital owing. This mortgage is guaranteed to be repaid
in full so long as you make each repayment when it is due.
Standard variable rate mortgage
Lenders set a standard variable mortgage rate which will
fluctuate in line with the market conditions. It can prove
to be a suitable option for those whose immediate future
is unplanned and who may not wish to commit to a product
which includes a tie in period in the form of redemption
penalties. But can be difficult to accurately budget for
your mortgage payments.
Discounted variable rate mortgage
Discounted variable rate mortgages involve paying a set
amount below the basic variable mortgage rate for a certain
number of years. After the discounted period the rate will
revert to the standard variable rate. There will usually
be a charge for early repayment.
Fixed rate mortgage
A fixed rate mortgage allows you to fix your monthly payments
for a specified period of time. After the fixed rate term
has expired, the interest rate will revert to the standard
variable rate available at the time. It may be possible
to fix again when the period ends. This mortgage allows
easy budgeting because you know exactly how much your monthly
payments will be.
Fixed rate mortgages will protect you against possible
rises in variable rates but, if general rates fall below
the level of the fixed rate then this could work out a more
Allows you to make additional or lump sum payments in excess
of your scheduled monthly amount, enabling you to pay off
your mortgage early. This reduces the amount of interest
charged. In addition, you can choose to re-borrow the money
at any time.
Capped rate mortgage
Somewhat like the fixed rate in that the maximum amount
you pay is determined during the given capped period, however
if interest rates come below your capped rate then your
rate will reduce to that rate as appropriate.
The lender gives you either a percentage of the loan or
a flat amount as a cash incentive. This is not added to
the loan and does not attract interest, though it may be
repayable if the loan is repaid before a given period of
time. It is common for a cashback to be combined with other
mortgage products such as fixed or discounted rates. Cash
back appeals particularly to first time buyers, money can
be used for legal fees, soft furnishings etc.
ISA (Individual savings account)
Throughout the period of the loan only the interest is paid
off. At the end of the loan period the loan amount is still
to be paid off. To pay this amount a separate endowment
policy or other suitable strategy is created at the start
of the loan period. The funds created by this are used to
pay off the loan. If the investment has done better than
expected then you will have the surplus funds. However,
if the policy does not cover the loan amount you will have
to cover the shortfall.
If you have any dependents it is a good idea to make sure
that, in the event of you becoming seriously ill or dying,
they can continue to live in your home.
Valuation Fee: depending upon a) the lender b)
the type of valuation/survey you require.
Lender's Arrangement Fee: payable either in advance
or on completion and is sometimes added to the loan
Higher Percentage Lending Fee: An insurance fee
if the mortgage is more than a certain percentage of the
value of the property. This is used to protect the lender
and not you. If the lender claims on the insurance policy
you will owe the insurer the amount paid out.
Buildings and Contents Insurance: All lenders
require that you insure your property to the full cost of
rebuilding it. You should also have the contents of your
home insured in case of a burglary, fire etc..
Mortgage Payment Protection: This will help protect
your mortgage and you in the event that you are unable to
work through accident, sickness and/or involuntary unemployment.
You should always seek professional help before deciding
on a mortgage.