Mortgages Explained

Please read through this page to familiarise yourself with how we work and what you can expect from us. We have also detailed below an overview of the choices available to you when obtaining a mortgage.

An overview of our advice process

Clients approach us in a number of ways, from an informal telephone conversation to find out if they are eligible for a mortgage to an immediate face to face appointment to requesting a quote by email. We aim to be as flexible as possible in order to fit in with your lifestyle.

For clients that do not require face to face advice or are simply too far away, we will require additional checks to carried out to satisfy money laundering regulations. Typically this involves having identification certified by your bank or a solicitor.

In the vast majority of cases, advice is carried out face to face so all identity checks can be certified there and then by the adviser. A full analysis of your needs and objectives is completed along with the mortgage process being fully explained. Any questions are answered and usually a product recommendation is confirmed unless further research is required for more complex cases.

Once you are ready to proceed with the mortgage, the product is then booked and any necessary fees payable to the lender are paid and the product is then secured subject to underwriting.

Assuming any further detail that maybe requested by the lender is satisfactory, the mortgage offer will be issued. The mortgage offer is your formal loan agreement which will be sent to your solicitor ready for exchange and completion.

Selecting a Mortgage Repayment Method

We would normally start by selecting how the mortgage was going to be repaid over its term, this is known as the Repayment Method. This is then followed by an analysis into which type of Mortgage Product would best suit your needs.

Mortgage Repayment Methods are best described below. These are the two ways of paying off your mortgage over the term of the loan. The decision for which repayment is better for you will be based on your attitude to risk.

Repayment

Each monthly payment to your mortgage lender consists of capital and interest. Over your mortgage term the loan gradually reduces so by the end of the term, your mortgage will be repaid as long as you keep up to date with your mortgage repayments.

Interest only

The monthly payment to the lender purely pays the interest on the capital borrowed. The loan therefore does not reduce. A 'repayment vehicle' should be in place in order to pay off the outstanding balance at the end of the mortgage term. Types of repayment vehicle include ISA's, pensions and Endowments. But please note that the repayment vehicle chosen may not pay off the mortgage in full at the end of the mortgage term. Hence this can be the riskier option further down the line.

Types of Mortgage Products

• Fixed

• Tracker

• Variable

• Capped

• Discounted

• Flexible

• Cashback

Fixed Mortgage

The rate is fixed for a designated period of time i.e. 2,3,5 years and then switches to the standard variable rate.

Pro's

• You have a fixed rate for a fixed period.
• You are protected from rate increases.
• You know how much each monthly payment will be for the agreed term making budgeting easier.

Con's

• There maybe early repayment charges.
• You will not benefit from interest rate reductions.

Tracker Mortgage

A Tracker Mortgage tracks the Bank of England base rate by a specified percentage for a specified period of time i.e. 0.85% above base rate.

Pro's

Con's

• You will be paying more if the base rate increases.
• There maybe early repayment charges.
• Budgeting can be more difficult as monthly payments can fluctuate.
• You may have a collar, which means your rate can only decrease to a certain point.

Variable Mortgage

Variable Rate mortgages are generally the rate you go onto after a fixed term has ended. This is known as the SVR, Standard Variable Rate. This rate is usually set 1-2% higher than the Base Rate and stays roughly in line with the Base Rate changes.

Pro's

Con's

• Budgeting can be more difficult.
• You are not protected from interest rate increases.
• There are almost always cheaper alternatives.

Capped Mortgage

A Capped Mortgage is based on a lenders standard variable rate. The rate has a set limit i.e. 7%. If the standard variable rate increases you will never pay above this capped rate within the products specified period.

Pro's

• You know your maximum interest rate.
• You can budget knowing what your maximum cost may be.
• You may benefit from interest rate reductions.

Con's

• There may be early repayment charges.
• Usually a higher interest rate than those of a comparable fixed rate.

Discounted Mortgage

A Discounted Mortgage offers an initial discount on the lenders SVR. This may be for example a 1% discount on an standard variable rate of 7% for the first 2 years.

Pro's

• Offers a true saving and no hidden charges. i.e. the interest saved is not added on to loan.
• You may benefit from interest rate reductions.

Con's

• There may be early repayment charges.
• Your rate will increase back to the lenders standard variable rate at the end of the discount period.

Flexible Mortgage

Only available with specific Lenders and if you have or take up a current account with them. Commonly known as "Offset" mortgages.

Pro's

• Offsets your current account or savings balance against your mortgage amount, therefore paying less interest over the mortgage term.
• Option for payment holidays.
• Option to reduce loan faster by making overpayments.

Con's

• Usually arranged on a variable rate basis.
• May find it difficult to budget.
• Savings on comparison with other products can be very small.
• Not for the 'financial disorganised'.

Cashback Mortgage

Cashback Mortgages are designed to pay you a percentage of your loan on completion. Usually a more expensive option in comparison to other products.

Pro's

• A percentage of your loan is paid to you as a lump sum.
• Cashback paid on completion or shortly afterwards.
• Usually linked to a variable rate.

Con's

• May find it difficult to budget.
• Early repayment charges applicable.
• Cashback must be repaid if mortgage is redeemed within early repayment charges period.

Questions for consideration

Below are some questions that maybe worth having a think about before deciding which product would best suit your needs.

• Are you concerned about the possibility of future interest rate movements?
• Might your income or expenditure fluctuate significantly in the near future?
• Do you prefer a set budget?
• Are you likely to move in the near future?
• Would you like the ability to vary the repayment amount or take payment holidays?
• Do you have any plans to pay off some, or all of your mortgage in the foreseeable future?
• Do you prefer a short or a longer term arrangement?
• Do you require Mortgage, property and personal protection?
• Would you like the certainty of your mortgage being repaid at the end of your mortgage term?
• Do you have an Endowment policy?