Mortgages
The principle of a mortgage is straightforward. You borrow money to buy a property, pay interest on the loan and eventually pay it back. Things start to get a little more complicated when you consider particular mortgages for special situations, the range of differing interest rate options and the various ways in which the mortgage loan can be repaid.
In finding your ideal mortgage, our first step is to build a thorough understanding of all of the factors which will influence our recommendation. The discussion will cover things such as what you want to achieve, your financial position, life changes that you have planned for the coming years and your desire to know in advance how much you will be paying each month.
A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME OR PROPERTY. YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.
MORTGAGE DEALS MAY NOT BE AVAILABLE AND LENDING IS SUBJECT TO INDIVIDUAL CIRCUMSTANCES AND STATUS.
Types of Mortgage
Remortgage
There are many reasons for remortgaging and it is worth seeking remortgage advice to understand these, but the main one is the opportunity to save money. With so much competition between lenders there are many new products and offers available in the market, so for many homeowners. remortgaging could generate substantial savings.
Remortgaging could simply mean switching your current mortgage to a new deal with the same lender, or obtaining a mortgage with another provider. It can also enable you to release equity in your home. This is particularly useful for clients looking to consolidate their debts or to obtain additional borrowing to extend their existing property.
Buy to let
In the current environment of relatively low interest rates and historically low investment returns, for many people buy-to-let property is an attractive investment option. Also, the growth in property prices has increased the demand for rental properties in many parts of the UK, making being a landlord an appealing source of growing income.
If you have a standard residential mortgage and rent out your property without the lender’s approval, you could find yourself committing mortgage fraud. A buy-to-let mortgage lets you borrow money to purchase a property that you can then rent out. Buy-to-let mortgages are offered by many lenders and are generally more expensive than a standard residential mortgage because they are considered a higher risk.
Taking out a buy-to-let mortgage generally entails finding a higher deposit than you would need for a residential mortgage. You can expect to put down at least 25% as a deposit, although the best buy-to-let mortgage deals often require a 40% deposit. When considering your buy-to-let mortgage application, the lender will of course consider your income and expenditure in the usual way. They will also consider the extent to which the rental income will exceed the monthly loan repayments, with many requiring the income to be at least 145% of the mortgage repayments.
MOST FORMS OF BUY TO LET MORTGAGE ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
First time buyers
Like many new experiences, buying a first home can often appear somewhat daunting. It’s likely to involve the biggest financial commitment of your life to date and, just as you will want to ensure that your new home is right for you, it’s also sensible to make the best decision about your first mortgage.
At Cotswold Mortgage Advice Centre, we provide professional advice for those looking to take that first step onto the property ladder. We will help you to find the most suitable mortgage on the market and can also discuss with you other products that you may need, such as life assurance cover, redundancy and sickness cover and home insurance. We can also provide specialist advice if you intend to make use of the government’s Help to Buy scheme. Please note that this scheme is only available to home-buyers in England. Different schemes are in operation in Wales, Scotland and Northern Ireland.
Commercial mortgages
A commercial mortgage (also referred to as a business mortgage), is a loan secured against a property which is used purely for business purposes.
Commercial mortgages generally take over where unsecured business loans finish. For larger loan amounts, lenders require the security provided by a mortgage on the business premises as security to reduce their lending risk.
Unlike residential mortgages, the interest rate charged for a commercial mortgage will vary according to the nature of each individual borrower. As specialists in the commercial mortgage market, Cotswold Mortgage Advice Centre has the contacts and market knowledge to get you the best deal.
Mortgage Options
Repayment mortgages
With a repayment mortgage, each of your monthly payments consists of two elements; interest on the amount of loan outstanding plus a part repayment of the amount borrowed. The repayments are calculated to ensure that, at the end of the mortgage term, the entire loan has been repaid.
In the early days your payments will consist predominantly of interest, but as time goes by and the capital outstanding reduces, the interest element will fall as the capital element rises.
A repayment mortgage is ideal for buyers who want the certainty that their mortgage will be paid off at the end of its term.
Interest-only mortgages
With an interest-only mortgage, all you pay to your lender each month is the agreed interest on your outstanding loan amount. You will need a separate arrangement for building up the capital to repay the loan at the end of its term.
Lenders have different criteria, but a suitable repayment plan is likely to mean paying regularly into savings or investments and could include pensions and other properties. If you use an investment plan, it’s your responsibility to ensure that it remains on track to pay off the capital at the end of the mortgage..
As there is a risk that your chosen capital repayment plan may fall short of the amount needed to repay the mortgage loan, interest-only mortgages tend to appeal to borrowers who are happy to live with this level of uncertainty.
Variable interest rate mortgages
The most basic type of mortgage. The interest rate rises and falls in line with market conditions, most commonly when the Bank of England changes its base rate. Occasionally other economic and market factors come into play as well, so the interest rate you pay can change even without the base rate moving.
Often buyers choose a variable rate mortgage if they believe that interest rates are likely to fall, but even in these circumstances there are probably better alternatives available.
Discounted rate mortgages
The interest rate paid is at a discount to the lender’s standard variable rate, rising and falling in line with market conditions. The discount period typically lasts for 2 to 5 years, after which you will revert to the standard variable rate.
Discounted rate mortgages suit buyers who like the benefit of a reduced rate of interest, but can afford to pay a higher amount if rates go up.
Cashback mortgages
These are generally standard variable rate loans where, as an inducement to choose them, a lender offers a cash sum on commencement of the mortgage. The amount of cashback is generally a small percentage of the total loan.
The cashback mortgage is most suitable for borrowers who need a lump sum to help with the cost of their home move.
Fixed rate mortgages
Particularly popular with first time buyers, fixed rate mortgages do exactly as the name suggests. The rate of interest which you pay is fixed for a set number of years, generally 2, 3 or 5, but sometimes 10 years, regardless of what happens to interest rates in the wider market.
While you benefit when interest rates are above the fixed level, the downside is that you'll be stuck on a higher rate if other mortgage rates go down. You can switch from your fixed rate mortgage, but if you do so during the fixed rate period there will be an early repayment charge to pay.
When the fixed rate period comes to an end, your mortgage will be changed to the lender’s standard variable rate and you can consider applying for another fixed rate deal.
If you need to budget carefully, a fixed rate mortgage is worth considering.
Tracker mortgages
The interest rate charged on a tracker mortgage moves in line with a nominated interest rate, usually the Bank of England base rate or LIBOR rate. The actual rate that you pay will be a set percentage either above or below the rate being tracked. When the base rate goes up, your mortgage rate will go up by the same amount. When it falls, so too will the rate that you pay.
Capped rate mortgages
This is another version of the variable interest rate mortgage, with a set limit on the maximum rate of interest which the borrower pays. So you have the benefit of reduced payments when rates go down, with the security that repayments will never exceed a certain level despite how high rates rise.
Offset mortgages
An offset mortgage consists of a savings account and mortgage together.
Each month, the amount on deposit within the savings account is offset against the outstanding mortgage amount and interest is only payable on the difference between the two. You can still access your savings should you need to, but the higher the balance retained within the savings account, the greater the reduction in mortgage interest.
The product can be beneficial to buyers with a high amount of savings, particularly if they are higher rate tax-payers.
95% mortgages
For borrowers struggling to save a sizeable deposit, the 95% mortgage can offer an appropriate solution. The downside is that, because only a small reduction in property prices poses a significant risk to the lender, they will charge a comparatively high mortgage rate.
If you only have a low deposit, you may be eligible for the Government's Help to Buy Equity Loan Scheme.
Flexible mortgages
Just like most other types of mortgage, with a flexible mortgage you can choose to pay more than the required amount when you have the opportunity to do so. But unlike other home loans, if you have already paid an excess and then run into payment difficulties or simply want to take a payment “holiday”, you can reduce or miss a few payments.
There is generally a cost to pay for this added flexibility, by way of a higher interest rate than payable on other deals.
High Value Loans
Often borrowers looking to raise a high mortgage amount find the products offered by mainstream lenders too restrictive to meet their specific needs. For many, a simple financing option is not enough to meet their needs. Overseas purchasers or foreign nationals living within the UK may wish to borrow in another currency, or perhaps a range of currencies to make the most of exchange rate changes. Some choose to structure their finances through an offshore vehicle such as a Special Purpose Company or Trust.
Cotswold Mortgage Advice Centre are experts in the sourcing of high value loans, having built relationships with specialist lenders who focus on providing loans to high net worth clients.