- What is a Mortgage?
- What is a Flexible Mortgage ?
- Do interest rates change? Can I
control this?
- What are redemption penalties?
Do they affect me?
- I'm Self Employed..Can I get a
mortgage?
- I've had financial difficulties
in the past......will this stop me getting a mortgage?
-
I am a first time buyer and I
suspect I may need a 100% mortgage. What are my options?
-
Are cashback mortgages a good idea?
-
What are the different ways you can repay
a mortgage?
A:
A mortgage is a loan normally arranged with a building society
or bank, in order to purchase a property. The purchased property acts as
security for the loan. The loan is repaid over a set number of years in monthly
installments. The number of years may vary dependent on individual circumstances
but is typically 25 years. If the purchaser fails to make their monthly
repayments, then the lender would be entitled to repossess the property.
A: A
flexible mortgage allows you to make additional or lump sum payments in excess
of your scheduled monthly payment, enabling you to pay off your mortgage early.
By reducing the capital amount of your mortgage in this way, you are also
reducing your monthly interest payments. You may take this money back at any
stage or use it to take a repayment "holiday". By maintaining a regular
overpayment throughout the term several thousand pounds can be saved.
e.g On a Mortgage of £100000 with a rate of interest at 5.95% and an original
term of 25 years a monthly overpayment of just £30 would save £10248 in interest
payments and pay off the mortgage 2 years and 4 months early.
A: yes, these are the main types of interest rate you’ll come across and how
they work
Fixed interest rate mortgages.
The lender will guarantee you a set rate of interest on your loan, normally for
a specified number of years. Once this period has expired, your interest rate
will revert to the normal variable interest rate.
Capped interest rate mortgages.
The lender will guarantee that your rate of interest will not rise above a set
interest rate. However, if the normal interest rates fall, the rate of interest,
the lender charges you, may also fall.
Discounted interest rate mortgages.
The lender provides a discount off their standard variable rate of interest for
a period of years or months, this could be as low as 0.25% off up to 100% off
(interest free) This means the interest you pay will still vary up or down but
at a lower rate than the general interest rate. Once this period has expired,
your mortgage will revert to the normal variable interest rate.
Standard Variable interest rate mortgages.
The interest rate on your mortgage will vary, unrestricted, up and down over the
period of your loan dependant on the performance of the economy. (generally
carries no tie in period or redemption penalty.
A:
Generally a redemption penalty will be charged if you cash in a fixed,
discounted or capped rate mortgage during the first few years. They are usually
a few months interest payments, which can run into thousands of pounds. Talk to
your mortgage specialist about any penalties that may apply on loans you are
considering.
A:
Yes. Whilst many high street lenders will exclude those unable to produce
audited accounts our panels specialise in finding the best deals around for the
self employed. A number of lenders will want two years of full accounts but this
is not the case throughout the market and we should be able to solve any
difficulties you may have encountered. Contact us with your individual
circumstances and let us find you your mortgage.
A.
It depends on what those problems were and how long ago they occurred. In the
case of mortgage arrears most lenders will want to see that they have been
brought up to date and maintained for 6-12 months.
County Court Judgements (CCJ) may pose a problem and again, it will depend on
whether there is more than one, the size of the judgement and whether they have
been satisfied. In some cases a lender may accept a suitable explanation for
your CCJ.
There are also a number of lenders who specialise in this area of the market and
they will often lend where other mortgage companies may decline. If you contact
us with your circumstances we will be able to find the best option available for
you.
A: You will almost certainly be better off if there is any way you can find a 5%
deposit to put down. However, if this is not possible there are a number of
options available for consideration in this area and you will need expert advice
before deciding which may be appropriate for you. The following points are worth
bearing in mind.
As a 100% mortgage is considered by lenders to involve a higher risk to
themselves, the deals on offer are not as attractive as those generally
available. Stricter lending criteria are imposed and anyone with poor credit
history will find their choices restricted. You may also have to pay a large
Mortgage Indemnity premium which is used to buy cover for the lender which will
protect them in the event that you default on the mortgage, and following the
sale of the property there is a shortfall against the amount owed. Whilst this
fee (which could amount to £1,800 on a £60,000 mortgage) can be added to the
loan you will then start your mortgage owing more than the value of your
property.
If you are able to find the 5% on a temporary basis then you could consider a
cashback mortgage. These offer you a deal whereby you will receive a cash
payment possibly amounting to 5% or 6% of the mortgage which is paid on
completion, thus repaying the 5% deposit. Your mortgage indemnity premium should
be considerably reduced using this
Another possibility is to consider a top up mortgage through a second lender for
the balance over 95%. You should therefore benefit from cheaper rates on the
bulk of your mortgage although you may have to pay more on the 5% top up. It is
important with this type of arrangement to be very clear about any fees you may
be incurring.
a:
There are a number of very attractive cashback products on offer and you need to
decide whether they meet your personal situation and requirements. Most of the
largest offers rely on the fact that that the lender is offering you the initial
cash in return for charging the normal variable rate (or sometimes a slightly
higher rate). As long as you are prepared to accept a variable rate and could
meet your repayments if interest rates rise it may be suitable.
The lender will impose redemption penalties on you which will normally require
repayment of the cashback if you were to move to another lender in the first few
years. Also compare the cashback being offered with discounts available. If you
can obtain a cashback of 5% or a discount off the variable rate of 2% over three
years then your total discount will amount to 6% so it is a question of whether
you would prefer your money over a period of time or receiving a reduced amount
up front.
Cashback proceeds could be liable to Capital Gains Tax. For most people, the
annual exemption will cover their cashback amounts, although it is worth
remembering that if any other gains are made during the tax year a liability
could arise. Please contact one of our specialists for more details.
What are the different ways you can repay a mortgage?
Repayment Mortgages
This is a straight forward loan. Each month you make repayments to the lender.
These repayments will be made up of an amount to pay off the capital of the loan
and an amount to pay for the interest charged on the total of the loan.
Endowment Mortgages
Your monthly repayments on an endowment mortgage are split two ways. One part of
your payment goes to your lender and the other goes to an investment fund
(normally managed by another company). Your monthly repayment to your lender
only pays off the interest charged on your mortgage, not any of the capital.
This means, that at the end of the period of your mortgage, you still owe the
mortgage company the same amount as you initially borrowed. Your monthly payment
to the investment fund, normally linked to units, builds up an amount, which
will be used to pay off your mortgage at the end of the term. The amount of
money returned from your investment fund depends on how your policy has
performed over the years. There is no guarantee that there will be enough to pay
off your mortgage. However, they are designed so that you may actually receive a
cash lump sum in addition to being able to repay your mortgage, or you may be
able to repay your mortgage early, saving you interest payments.
ISA Mortgages
ISA stands for Individual Savings Account. These are schemes which allow
individuals to invest in shares and bonds up to a certain amount without paying
tax on the profits. An ISA mortgage works in the same way as an endowment
mortgage, see above. The main difference between the two, is that your
investment fund is based purely on shares and bonds rather than units.
Pension Mortgages
When you retire, you are currently allowed to take a proportion of your pension
as a tax free sum. A pension mortgage works in the same way a as pep or
endowment mortgage (see above). The difference between them, is that a pension
mortgage is linked to your pension, using this tax free sum to pay off your
mortgage. This mortgage enables you to take advantage of the pension tax
benefits.
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