Mortgages
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.
Your home may be repossessed if you do
not keep up repayments on your mortgage. |
