Repayment
Each month the amount you pay to the lender consists part of the original
capital borrowed and part of the interest due. Slowly over the term
you have selected (anywhere between 10-40 years, normally 25 years)
loan reduces, thus creating equity in the property. At the end of
your selected term of years there will be nothing left to pay, provided
that you have kept up all of your monthly repayments. Little risk
is involved in this method of payment; it is most suited to those
who wish to guarantee repayment of their mortgage.
Interest
Only As it sounds each month you only pay the interest amount for
the original loan. This then means at the end of your selected term
you have to pay the full amount of capital borrowed at the outset.
As you only pay the interest of the amount borrowed the repayment
amount is smaller. However, that saving is usually spent towards the
purchase of on investment vehicle to produce the amount of capital
required at the end of the term. That is unless you pay the original
sum back from the proceeds of the sale of the home, inheritance or
legacy. This type of mortgage usually requires some proof to the lender
of ability to repay the mortgage at the end of the term, be it through
assignment of savings vehicle or a notation of lenders interests to
any policy. This is a higher-risk mortgage.
Mortgage
Schemes Explained
There
are six generic types of scheme you can use to repay your mortgage
these are split into two broad sections; those with a fluctuating
(variable) rate of interest and those based upon a stable (fixed)
rate of interest. They are divided as follows:
| Variable
derivatives |
 |
Standard
Variable Rate (SVR) |
|
Base
Rate Tracker (Tracker) |
|
Discounted
Rate |
|
Flexible |
|
Fixed derivatives |
|
Fixed
Rate |
|
Capped
Rate |
Each
of these schemes has various advantages and disadvantages and the
relative merits of each are again dependant on the individuals view
point and attitudes to risk. Each is now considered in turn under
a general perspective to give you a broad outline of the schemes.
This is however a general outline to help establish focal points and
to give us an idea of the direction of the scheme you find most suitable
to your own needs, it must also be pointed out that there will be
differences that are unique to each lender which will in themselves
become prevalent at the later stages.
Standard
Variable Rate (SVR) -
This is the original type of mortgage and is based upon various factors
affecting each individual Lender. The Lenders have to also borrow
money to lend it to you their cost of borrowing plus their profits
for providing the service are added to their calculations when setting
this rate, this is true of all rates not just SVR. The main points
are: i. The current rate of the Lender is the rate you pay there are
no hidden extra charges. ii. If the Lender decides to lower the rate
then your monthly payment amounts will lower in line. iii. They have
no arrangement fees typically associated with them. iv. They tend
to have no redemption penalties as they are ultimately the rate that
the majority of schemes end up being. However, because the rate varies
it can go up as well as down, meaning that if the Lender decides to
raise interest rates then your payment amount will rise inline. This
lack of protection from the rise and fall of interest rates means
that budgeting can be very difficult.
Base
Rate Tracker (Trackers) - This
is a more recent type of mortgage scheme but it has its basis levelled
firmly in the roots of SVR. However the main fluctuations in rates
are set independently of the Lender by the Bank of England. The rate
charged to you by the lender is based upon the current level of the
Bank of England Base Rate either above, below or the same level for
a predetermined period selected by you at the outset. Your monthly
payments more accurately reflect the underlying rate of interest prevalent
in the economy. As this mortgage scheme tracks the Bank of England
base rate any subsequent changes in the rate are immediate in effect
upon your monthly payments, as with SVR this can cause your payment
to go up as well as down. Again this causes budgeting to be difficult,
as you do not know the exact amount of monthly payment until it has
come out of your bank account. In contrast to SVR many Tracker rates
have arrangement fees and redemption penalties attached to them.
Discount
Rate - This scheme offers you
a true saving over the likes of the previously discussed schemes (SVR
& Trackers) in that for a specified period of time this rate is a
reduction in cost of those previous rates - with no hidden extra charges.
It is a true and genuine discount of those rates the saving is not
added back on to the loan at any later stage. As with the previous
rates there are savings if interest rates decrease and higher payments
if interest rates go up. The fundamental factor is that you still
make a saving over customers paying the standard rate from which you
are receiving a discount. The majority of rates that fall into this
scheme generally have no arrangement fees but depending upon the type
of discount and the period it's over you may come across a fee occasionally.
There are also redemption penalties often attached to this type of
scheme but they generally tend to be the requirement to pay the discount
back if switch mortgage before the specified term. However, they are
not always a factor of the scheme; this requirement will vary from
lender to lender (as with all mortgages check small print before proceeding).
Flexible
Schemes - This is the newest
scheme on the market. It has features that enable you to take charge
of your mortgage account allowing you to borrow and repay in a manner
that suits you, thus rendering it flexible around your needs. This
type of scheme has most benefit to those that have the luxury to be
able to afford to pay off lump sums at times to suit them without
fear of being charged for the privilege. It also allows you to increase
your borrowing level against the property saving the time and effort
of arranging a loan and the payment is included in your regular mortgage
payments as long as there is equity in the property. Payment
holidays may also be taken in lieu of any overpayment that you may
have previously made on your flexible mortgage account. This means
that if you have built enough credit to your account you are able
to miss a few months payments if you require (check individual Lenders
small print to see how and when you are entitled to this feature,
if at all). It generally tends to calculate the interest charged to
your mortgage account on a daily basis without going into too much
detail. This has greater benefit to you than if it were calculated
monthly or annually. This flexibility often comes at a price to you
when choosing this scheme. Most require a larger deposit towards the
purchase and the interest payment is not always the most competitive
of rates. The flexibility itself, whilst being very convenient, can
at times encourage over commitment and fully flexible mortgages are
not generally recommended for first time buyers due to this factor.
This
is a generic description of a fully flexible mortgage. The features
described are as applicable to the true state of a flexible scheme.
Some of the above noted flexible features are available to a lesser
extent on the majority of other schemes (check individual lenders'
small print).
Fixed
- This is the low maintenance mortgage that provides you with the
peace of mind that the rate you choose is the rate you pay for a selected
period of time. It provides stability and continuity of payments for
the term you select and can make working to a budget easy, as you
know from day one how much you need to have in the bank to meet your
payment schedule. This peace of mind comes with the cost of arrangement
fees to set this scheme up in the first instance (in most cases; not
all) and redemption penalties should you choose to move your mortgage
before the end of the specified period (not always the end of the
fixed rate term it many cases it stretches past that period). The
fact that the rate is fixed also means that you cannot benefit should
the interest rates fall, conversely you do not pay more if your rates
rise during the fixed period either.
Capped
- This provides some of the stability of a fixed rate in that the
most you are likely to pay per month is set at the capped interest
rate (your upper level), but with the advantage of rate reductions
being passed on to you if or when they fall. This added advantage
of giving you a saving when the rates drop and stability of a maximum
level set on your payments again comes at a cost, that again being
arrangement fees, redemption penalties and most commonly the interest
rate at which your payments are capped tend to be set proportionately
higher than the majority of fixed rates.
What
to do now
Go
to the contact page and fill in a few simple
details and representative will
contact you at a time to suit you, in a manner to suit you.
The
overall cost for comparison is 7.1% APR. The actual rate available
will depend upon your circumstances. Use our contact
page for a personalised illustration. APR variable and based on
a usual case. Our fee will depend on your circumstances, minimum fee
charged is £395 our maximum is 1% of your mortgage this may be added
to your remortgage advance. Early repayment charges are likely to
apply. They will vary depending on the mortgage you choose.
Think
carefully before securing other debts against your home. Your home
may be repossessed if you do not keep up repayments on your mortgage.
H2ms is a marketing division of Heather Homes Ltd, Registered office
Fishbourne, Chepstow Road, Newport, South Wales, NP19 9EZ. Registered
in England and Wales: Number 3921132. Heather Homes LTD are authorised
and regulated by the Financial Services Authority (FSA).
