Articles
Types of Mortgages
There are many types or styles of mortgages available in the market place and a number of reasons for choosing any or all of them. The choice can be confusing, so how can you be sure, which is best for your circumstances?
Buy To Let, Commercial, Debt Consolidation, First Time Buyer, Graduate, Investment, Islamic, Key Worker, Lifetime, Offset, Over 60s, Overseas, Remortgage, Second Home, Right To Buy, Self Build, Shared Ownership
It can take many years to really know the mortgage market enough to understand the main features and respective benefits of traditional and flexible mortgages and it can take even longer to be able to understand and explain the difference between Fixed, Tracker, Capped, Collared and Discount mortgages.
There are TWO main types of mortgage rates however, fixed rate and variable rate, which have a number of variations within. There are TWO main methods of mortgage payment, Interest Only and Capital Repayment, which also have variations. There is a balance to be reached between the fees imposed by the lender and the low interest rates that may be on offer. It is no coincidence that the lowest rates invariably attract the highest fees.
A mortgage is likely to be used for the biggest purchase you will make in your lifetime, so it is vital to obtain the best advice possible. It is extremely important to select an adviser, who can provide mortgages from the whole market. It is also important to ensure that the adviser is suitably qualified, authorised and regulated. If you are fortunate enough to find an adviser who is truly impartial and offers advice without cost or obligation, then you are indeed truly blessed.
OK, OK, so I’m talking about me. Yes, I can help you to understand more about mortgages, if you really want to or I can simply take away the doubts and confusion. Yes I can advise and provide from the whole of the market and I’m qualified, authorised and regulated and yes I’m independent and impartial.
You may have tried the rest, now you can leave it to the best.
Interest only mortgages – are they still available? Are they a good idea?
Many people associate an interest only mortgage with the term ‘endowment mortgage’. It’s true that the most popular method of repaying the capital portion of an interest only mortgage was with an endowment policy. Mortgage advice was limited and Free Mortgage advice was non-existent. The scandal of mis-selling of endowments and other investments was clearly instrumental however in the creation of the FSA in December 2001, although mortgages were not regulated until October 31st 2004. Interest only mortgages continued to be popular, mainly because of affordability issues for house buyers but repayment mortgages remained as the preferred option.
A flexible interest only mortgage can be the most appropriate option however, with some switched on borrowers, especially while the interest rates are at an historically low level. Interest only mortgages are cheaper to service, as borrowers only repay the interest on the mortgage, without repaying the actual loan. Although this seems risky, many 1st-time buyers have no choice if they are to get on the property ladder. Most lenders who offer a flexible interest only mortgage insist on a repayment vehicle being in place, e.g. ISA, pension or an investment. As the alternative is for the borrower to be prepared to sell their property to repay the debt when called upon, it can lead to sleepless nights. This is where independent, impartial and free mortgage advice is essential, as flexibility is the key. One of the options available with flexible mortgages is to overpay whenever finances permit. This means that the outstanding capital will be reduced, whenever an overpayment is made. If the flexible interest only mortgage also has an offset facility, the interest on the outstanding mortgage will be reduced by the interest on the credit balances in linked accounts. (I’ll talk more about Offset mortgages in another article.) I mentioned that the current low interest rates are also significant. WELL, regular or one-off overpayments will have a greater effect on reducing the capital balance when the interest rate is low. Most lenders with flexible mortgages permit overpayments of up to 10% of the outstanding balance per year, during the term of the deal (2 year fixed or tracker etc) and unlimited overpayments when the mortgage returns to the Standard Variable Rate.
Borrowers with a flexible interest only mortgage need not panic, if they are unable to overpay however. Most lenders allow borrowers to switch from interest only to a repayment mortgage or vice versa, during the term of the mortgage. A repayment mortgage or a flexible interest-only mortgage? Take some free mortgage advice – talk to your adviser. It’s good to have a choice – it really could make a big difference to your financial plans for the future.