Mortgages

Buying your home can bring mixed emotions. It can be one of the most exciting times in your life, but at the same time, one of the most stressful. What ever happens, it is more than likely to be the single biggest financial commitment you will ever make.

The process of buying a house can be a complex one, with several stages to complete before you finally get the keys to your new home. So you've made your decision and its time to move, but how do you go about buying the home of your dreams?

Unless you are fortunate enough to have enough money to buy your home outright, you are going to have to borrow the money.

Today mortgages come in a wide and diverse range, tailored to suit virtually everyone's needs. Competition in the mortgage market has never been so intense, with many new providers, such as insurance companies and supermarkets now entering the frame.

Independent Financial Advisers deal with mortgage lenders on a daily basis and have access to the most comprehensive and up to date mortgage products, so they can explain it all to you in detail, including all the small print.

It is helpful to consider your mortgage from two aspects: the amount that it costs (the interest), usually paid monthly. The most suitable loan package depends on your circumstances.

For mortgages we are usually paid by commission from the lender. Alternatively, you may choose to pay a fee, typically £500, and we will refund any commission received.

The two basic types of mortgage are:

Capital and Interest Repayment Mortgage

As well as interest payments being made, the mortgage loan amount is gradually paid off year by year throughout the term of the mortgage. At the end of the term nothing remains owing to the lender.

Interest Only Mortgage

Only interest payments are made throughout the term of the loan, with the original mortgage loan amount remaining at the end of the term.

Interest Rate

This is the true cost of borrowing. Consequently, you should ensure that the type of interest rate package suits your financial circumstances now and in the early years of the loan.

The basis types of interest rate package are:

Fixed:

Here the rate is guaranteed to stay fixed for a specified period, after which it can be expected to revert to the lender's normal standard variable rate, or you may have the option to transfer to a new fixed rate.

Standard Variable Rate:

This is the traditional type of mortgage interest rate, which is set by the lender and fluctuates from time to time. It may be loosely based on the base rate, but will not always move at the same time.

Discounted Rate:

This is a discount to the lender's standard variable base rate, lasting for a guaranteed period of time. It will vary in that period with any change in the standard variable rate, and will revert to standard variable rate at the end of the period.

Capped Rate:

This is a form of variable rate where the rate is capped at a specified level over the specified period of time i.e. it is guaranteed not to exceed the capped rate during the period. The rate may fall during the period, and at the end of the period will revert to the lender's standard variable rate at that time.

Deferred Interest:

The interest payments in the early years are either totally or partially deferred. The amount deferred is added to the capital increasing the size of your mortgage.

LIBOR Linked Interest:

The interest rate is fixed to an amount above LIBOR. LIBOR is the London Inter-Bank Offered Rate. This is the rate at which banks notionally buy and sell money to each other. It varies from day to day and is closely linked to Base Rate.

Repayment Methods

Capital Repayment:

If you choose a capital repayment loan then you pay your loan down directly. If you choose the interest only method, then there are several different methods of repaying the mortgage. The right selection depends on your particular circumstances. The basic types are laid out below.

Endowment:

A form of savings based life assurance policy frequently used to repay home loans. The most common form is a low-cost endowment.

ISA (Individual Savings Account):

This has taken over from the Personal Equity Plan (PEP) as the current tax shelter for pooled investments such as unit trusts, which invest in the stock market.

Pension:

In this case you can set up a pension along side your mortgage loan. The pension contributions will obtain tax relief. At the end of the term the capital will be repaid from the tax-free cash sum, that can be taken from a pension fund at maturity.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER LOAN SECURED ON IT.

The information on this site is for general guidance only. Foyle Financial is an appointed representative of the M & E Network Limited, which is authorised and regulated by the Financial Services Authority. The M&E Network is entered on the FSA register (www.fsa.gov.uk/register/) under reference 150643.