Mortgage Guide                                              

The principal reason why some people find choosing a mortgage quite daunting and complicated, is the huge choice of lenders and products available.

When you go shopping for clothes, you will probably have a set of criteria in mind that limits options, such as the type of garment, the colour, size, whether it’s for a particular occasion, budget, etc. Listed below are some explanations of options that you might want to consider, as a starting point, to help you set a criteria when looking for a mortgage, and deciding which fits you best.

Repayment Methods

The first consideration is how the mortgage is going to be repaid over its term. There are really only two ways of paying off your mortgage. It is possible to arrange a ‘split repayment’ which is a mix of the two methods. The decision about which repayment type is better for you will be based on your attitude to risk.

Repayment / Capital & Interest

Each monthly payment to your mortgage lender consists of interest, and also a contribution toward reducing the capital balance. Over your mortgage term the loan gradually reduces, so that by the end of the term, your mortgage will be repaid as long as you keep up to date with your mortgage repayments.

Interest only

The monthly payment to the lender only pays the interest on the capital outstanding. The loan therefore does not reduce. A 'repayment vehicle' should be in place in order to pay off the outstanding balance in one lump sum at the end of the mortgage term. Types of repayment vehicle include ISA's, pensions and endowment policies. Depending on the performance of your investment, the repayment vehicle chosen may not provide a sufficient return to enable you to pay off the mortgage in full at the end of the mortgage term. This arrangement is therefore a higher risk option than a repayment mortgage.

Types of Interest Rates

Variable Rate Mortgage - Borrowers paying the Standard Variable Rate will have their payments increased or decreased as the lender adjusts the standard rate in accordance with market conditions.

Discounted Rate - The Lender offers a discount from the Standard Variable Rate (SVR) for a specific period of time. For example, the variable rate may be 5% with a discount of 1.5%. The initial pay rate would be 3.5%.

Tracker Rate - a variable rate that is linked to the movement of a prevailing rate such as The Bank of England Base Rate or London Interbank Offered Rate (LIBOR). The pay rate will be a set percentage amount above or below the relevant base rate for a specified period of time. For example, 2% above Bank of England rate, currently 0.5%, would mean a pay rate of 2.5%.

Fixed Rate - Interest rate set for a predetermined ‘benefit period’, usually 2,3, or 5 years. Interest will be charged at a variable rate after the benefit period expires.

Capped Rate - A capped rate, like a fixed rate, allows you to budget accurately for your monthly payment. If the variable rate drops below the capped rate, the borrower will make payments based on the lower variable rate. However, should rates increase the payments will be ‘capped’ and not exceed the capped rate.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Moving Experience is a trading name of Muttiserv Ltd, which is an appointed representative of Burns Anderson Ltd, 27 Great George Street, Bristol, BS1 5QT, which is authorised and regulated by the Financial Services Authority. Burns Anderson Ltd is entered on the FSA register (www.fsa.gov.uk) under reference 126191. The information and content of this website is intended for UK consumers only and is subject to the UK regulatory regime. The FSA does not regulate buy to let mortgages and commercial mortgages.

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