Types of UK Mortgages
You may be wasting your money with the wrong type of mortgage. Knowledge is power.
There are essentially two different types of mortgage:
Repayment only, (capital and interest mortgage)
Interest only, (ISA, pension or endowment mortgage)
Repayment only
Your monthly repayments consist of repaying the capital amount borrowed together with accrued interest. On your mortgage statement, normally received annually, you will see that the amount borrowed decreases throughout the term.
Advantages
At the end of the term, you are safe in the knowledge that the total amount of the debt has been repaid.
Overpayments and lump sum payments into your mortgage account can be made reducing both the interest and capital amounts repayable.
Life assurance cover is not always necessary in taking out this type of mortgage.
Disadvantages
There may be financial penalties for making lump sum/overpayments into your mortgage account.
In the early years of a repayment mortgage the majority of the monthly repayment is interest rather than capital. For borrowers moving house regularly, this can result in little of the capital being paid off.
If you have no life assurance cover in place and die before the loan is repaid, the mortgage will still need to be repaid. This may result in the property having to be sold to repay the debt owed.
Interest only
With this type of mortgage, only the interest is paid off with each mortgage payment. The borrower also takes out at the same time, an alternative 'repayment vehicle' (method of paying off the mortgage) such as an ISA, pension plan or endowment policy. More information about endowments (which in the 1980's and 1990's were extremely popular), ISAs and Pension plans are below. The most important fact about an interest only mortgage is that the monthly repayments do not repay any of the outstanding capital balance. As a consequence it is important that the payments are maintained into the repayment vehicle otherwise it will not be possible to pay off the mortgage at the end of the term.
Endowment
ISA Plan
Pension
Endowment
The most common type of interest only mortgage which also provides life assurance cover and a fixed payment for investment. The fixed payments are based on the amount of the loan together with the mortgage term and are designed so that, at maturity, the amount invested and earnings are sufficient to pay off the mortgage. Much maligned in the press because of the poorer investment growth rates achieved in a low inflationary environment this form of investment is less popular these days. Note there is no guarantee that, when the endowment matures and 'pays out', the balance will be sufficient to repay the mortgage.
ISA Plan
The Individual Savings Account (ISA) is a tax free method of saving. Using an ISA as a repayment vehicle is growing in popularity but due to the ISAs complexity it is only for the financially sophisticated or borrowers taking advice from a suitably qualified financial adviser.
Pension Plan
Life assurance cover is provided and monthly payments are made into a pension fund. When the benefits are eventually taken, the mortgage is repaid using tax-free cash from the remainder of the fund. The plan holder can then draw a pension from the balance of the fund. This product, which tends to be used by the self employed, is only for those taking advice from a suitably qualified financial adviser.
Discounted mortgages
Most of the discounted rates offer discounts over the first one, two three, four or five years. The total amount of discount on offer tends to work out approximately the same over the period of the discount. The choice is yours between making a choice between a large discount for a short period of time, a small discount over a long period of time or something in between. For example one product may offer a 3% discount over 2 years and another a 2% discount over 3 years. The total discount you receive in either case is 6% so the choice you are faced with is what period to take the discount over.
Cash back mortgages
These deals vary but, as the name suggests, you get cash ?as well as the money you're going to be borrow for your home. You may use it to pay for home improvements moving costs and furniture etc.
Cash back deals are perhaps best seen as an incentive to go with a particular lender. It's rarely a genuine gift and you will find that you have extended ties. There is nothing free in the mortgage market the lender will eventually make more than make their money back.
Current account mortgages
It's becoming increasingly popular to combine a mortgage and a current (banking & cheque) account. Its good news if you like the option of making overpayments on your mortgage (e.g. if you are self-employed or receive bonus payments). The other advantage is that interest is calculated on a daily basis, so when you pay money into your account, like your monthly wage, the overall loan size is lowered, so reducing the total amount of interest paid.
Base Rate Tracker Mortgage
These can get very complicated but in theory they're simply a mortgage that follows the Bank of England base rate at an agreed rate.
So you might have a Base Rate Tracker Mortgage which sets your mortgage at 1% above the base rate for, say, the first two years.
Non standard mortgages
If you have experienced financial difficulty in the past or are unable to produce full proof of your income then you may find that the main stream lenders are unable to help you. However, we would recommend that you contact these lenders first as, depending on the severity of your situation; you may find that they are willing to help. If not, however, you will find that there are lenders who specialise in this area of the market. These lenders tend to charge higher interest rates or require larger deposits. Once you have re established your credit you can change to a standard mortgage.
Remortgage
You don't have to move home to move your mortgage. Many homeowners move their mortgage to a different lender to save money, or switch to a different mortgage with their current lender.
You may want to remortgage to
Improve your home.
Save money If you're paying your lender's standard variable rate (SVR), your existing lender - or another lender - may offer better rates if you move to a different mortgage.
Raise money if you want to improve your home, or pay off other borrowings, you may be able to increase your mortgage rather than taking out a separate loan.
Nicholas Marr
Marr International Ltd
Visit our overseas website for Mortgages abroad,mortgage advice and overseas property
Marr International is not registered under the UK financial services act to give advice regarding mortgages. Our partners specialising the different regions world wide for mortgage advice.
You have finally found the home of your dreams. You... Read More
There are many benefits to interest-only mortgage loans. There are... Read More
Shakespeare once said about human nature 'with nothing shall be... Read More
In decades past, most people who were interested in obtaining... Read More
If you have bad credit history, no down payment or... Read More
In other words, the benefit of the loan must outlast... Read More
You might be wanting to look into bad credit home... Read More
Home equity loans are often touted as being the solution... Read More
You can buy a home with a bad credit record;... Read More
You are comfortably wedged in a mortgage deal, paying the... Read More
Owing to the popularity of home equity loans, there are... Read More
If you are a homebuyer, there are a few points... Read More
What if a banker or mortgage broker told you he's... Read More
With mortgage rates near 20-year lows, competition in the mortgage... Read More
Buy-to-let took off during the 1990s with the increasing availability... Read More
Online home mortgage quotes are very similar to the quotes... Read More
Today's real estate market is a volatile one; prices are... Read More
A few years ago, if you had a bankruptcy or... Read More
Every individual needs a home and every home needs an... Read More
If you have a recent bankruptcy on your credit and... Read More
You've finally found that dream home that you have always... Read More
A reverse mortgage is a certain loan that allows the... Read More
A VA guaranteed mortgage is the usually the best way... Read More
Looking for the best homeowner loans can be stressful, especially... Read More
A brief list of some of the most common Mortgage... Read More
Sometimes so much is talked about how to solve the... Read More
An Interest Only Mortgage is one where the repayments are... Read More
Your equity is the amount your home is worth, on... Read More
This is a great time to Refinance Your Home or... Read More
Almost two thirds of first time buyers accept the first... Read More
Sub prime lenders handle high risk mortgage loans that traditional... Read More
It's very important, and in my opinion, mandatory to have... Read More
I don't know what the mortgage situation is around the... Read More
When buying a home, you need to take a home... Read More
Buying a Home for the first time can be a... Read More
Few of us invest the time and effort into researching... Read More
When choosing the right mortgage company for your home purchase... Read More
Refinancing your mortgage after bankruptcy is actually the same as... Read More
The market for mortgage refinancing has been brisk during the... Read More
A Home equity line of credit is a loan which... Read More
There are many benefits and drawbacks to consider when deciding... Read More
Homes that have been foreclosed can be one of the... Read More
If you're looking for a cheap homeowner loan, you might... Read More
Hopefully your ego has never had to experience the words,... Read More
"I've been renting for years now; I've always paid my... Read More
There are several advantages to getting mortgage pre-approval before looking... Read More
Mortgage would have never happened, had mortgages been a no... Read More
Finding home mortgage loans are a reality for people with... Read More
People who are looking for a mortgage today have many... Read More
Most people approach the act of getting a home mortgage... Read More
Lots of articles have appeared recently about the booming real... Read More
A few notes of importance: This only applies to... Read More
There are many benefits to interest-only mortgage loans. There are... Read More
Sometimes so much is talked about how to solve the... Read More
Why You Need a Bridge LoanYou have to move fast... Read More
If you are considering buying a home, then you may... Read More
There was a time that seems like decades ago when... Read More
There are two broad types of home equity loans:Term loans:... Read More
Many homeowners are lucky enough to find a house that... Read More
Here in Spain the concept of a mortgage period of... Read More
What the average homeowner or home buyer fails to realize... Read More
When you consider that the average home owner will pay... Read More
Are you one of a growing number of people planning... Read More
A secured home loan differs from an unsecured loan in... Read More
Buying a house is a very important step in your... Read More
How To Release Equity Locked Up In Your Home For... Read More
Mortgage Refinance |