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At any one time there may be well over 2,000 different
mortgage options, only some of which will meet your needs.
We use powerful computer databases to sort through the vast range of
mortgages and identify the best ones for you, in terms of their features
and benefits, and also your own personal circumstances.
There are several elements to be considered when choosing a mortgage
such as -
- The interest rate charged now - and in the future
- Charges for early repayment of the mortgage
- The Mortgage Indemnity Guarantee Premium
- Whether to repay capital and interest or interest only
- Selecting the right insurance policy
It is important to assess whether the repayment will be
affordable in the future should the rate rise well above the current
low rates that have been maintained for some time. However, it is not
that long ago that interest rates were over 15% - that is nearly three
times the current rate.
You can therefore use our mortgage calculators to assess these
potential costs and how a variation in the Mortgage Term, Mortgage Amount,
Growth Rate and Interest Rate affect the actual costs that you pay.
As an independent financial adviser, we are in the best position to
ensure that you select the mortgage that best suits you. We have technology
in place that enables us to search the entire mortgage market in a matter
of seconds and rank the results in terms of cost, affordability, maximum
loans available and various other criteria.
To help you understand the mortgage market, here is a description of
each type of mortgage scheme.
There are two elements to a mortgage :-
- How the interest is charged
- How the mortgage is protected and repaid
Variable rate is where the rate
goes up and down in line with external influences such as the bank
base rate. However, you should be prepared for rates to increase during
the mortgage term and they can change by a factor of two or even more.
Most mortgage lenders offer some form of variable rates with an initial
discount for a period of months or years. Generally, the longer the reduced
or fixed period, the more you pay.
Fixed Rate Mortgages can have the interest rate from just a few months
to the entire 25 years. Many fixed rates are lower than the standard
variable rate, but with the longer the fixed term fixed rates, the interest
can be higher than the current mortgage interest rate. You are gambling
the interest rates will rise much higher that your Fixed Rate in the
long term.
Fixed rates mean you know exactly how much you will pay each month for
a fixed period but bear in mind that if interest rates drop below your
Fixed Rate you will be paying more money. Beware of early repayment
penalties which are several months' interest payable if you cash in your
mortgage early.
This means that, despite the fact that interest rates may well rise,
you are given a rate beyond which you not be will be charged for a period
of years or even until the end of the mortgage period. Capped rates can
have a "collar" which means they will not go below an certain
rate either for that period. Again, watch out for early repayment penalties.
This is effectively a bribe to get you to take out a mortgage with that
company. Be careful, though, as there are usually changes in interest
rates that mean it could be recovered in part or in whole later on.
With a repayment mortgage you pay part of the capital with each payment
and the interest on the outstanding amount. Naturally the payment, which
is normally fixed, pays more capital and less interest as the debt reduces
over the years.
It is important to remember that, as the years go by, with this method
you actually owe less and less and , providing you continue to make all
your monthly payments in full, the loan will be paid off at the end of
the agreed term which you can decide but it is normally 25 years.
If move home or re-mortgage, you would have to take out a new loan, and
re-commence repayments.
With this form of mortgage, you only pay the interest due to the lender
each month and your debt stays the same throughout the mortgage term.
However, the advantage is that the monthly payments to your lender are
lower than for a repayment mortgage, but you will have to clear the debt
at the end of the term with either a profit-making life policy, and investment
like an ISA or from a pension fund tax free lump sum payment.
An endowment is a life policy with an investment element that will pay
off the loan if you die before the end of the mortgage term but will
build a fund that is designed (but not guaranteed) to pay off the mortgage
by the end of the mortgage term, if you survive.
You could select a With Profits policy that invests your premiums and
pay annual bonuses which will be added to your fund. At the end of the
term, there is normally a terminal bonus before the final payout. With
Profits policies were designed to be safer and offer reliable growth,
but bonuses cannot be guaranteed..
With Unit Linked policies, your premiums buy stocks and shares and, as
the prices of these units are published daily, you are able to see the
value of your fund at any time. As with all investments, the value of
your fund may go down as well as up but these generally produce higher
growth in the log-term, but with a higher risk.
Unitised With Profits was the halfway house between the two where your
premiums buy units but in a With Profits fund, rather than the more risky
stock market funds, however bonuses again cannot be guaranteed.
Unfortunately, the effect of low interest rates and investment returns
over the last 5 years has adversely affected the amounts available at
the end of the policy term and many investors have been left with shortfalls
on their mortgage.
Any endowment policy is designed for the long term but should your circumstances
change or you are concerned about potential shortfalls, seek our advice
before you cash in your endowment as there are companies that can offer
higher amounts than the issuing life company. These are called Traded
Endowments and we will assist you in getting the highest return.
Up until April 1999 it was possible to use a Personal Equity Plan to
pay off your mortgage and you are still able to use existing PEPs for
this purpose, but you can now use an Individual Savings Account, better
known as an ISA with its tax benefits to create an investment fund
to eventually pay off your mortgage.
However, don't forget that this form of investment does not include any
life cover so this must be provided separately.
As always, the value of your investment may go down as well as up but
if you have any potential shortfall, we can advise you on an alternative
or additional source of mortgage repayment.
You can use the tax-free cash offered by a pension to repay a mortgage
and Personal Pensions give you certain tax concessions that make them
very cost-effective.
However, you should be aware that you are in fact using money that may
have been set aside for your retirement to clear the mortgage debt.
You can use virtually any investment product to help repay your mortgage
including Unit Trusts, OEICs, shares or you might even rely on an inheritance
to provide the funds to pay off your mortgage providing you are reasonably
sure that you will have sufficient funds in time to repay the loan.
Whatever mortgage you decide on, remember that this is probably the largest
purchase decision that you will make in your life so contact us as your
Independent Financial Advisers to guide you through the maze.
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