Key Contacts
Mortgages
Listed below are the two choices on how to repay your mortgage.Capital & Interest Repayment Mortgage
Repaying your mortgage this way ensures your debt reduces over the years as shown in the diagram. With a capital and interest repayment mortgage your monthly payments will be higher than an interest only mortgage. This method of repayment guarantees to repay the loan (provided monthly payments are met).
Interest Only Mortgage
Repaying your mortgage this way means your mortgage balance remains constant throughout the term. Normally you would take out an investment vehicle designed to be sufficient to repay the capital at the end of the term. This method of repayment does not guarantee to repay the loan.
Below are some of the different standard mortgage products available.
Fixed Rate Mortgage
As the name implies, your payment is fixed for a period of time, meaning regardless of interest rate movements, your payment will remain the same.
Capped Rate Mortgage
Capped rates are similar to fixed rates except that there is a maximum payment / rate you pay even if rates rise. E.g. Standard variable rate 6.75%, Capped rate 6.5%. You pay at 6.5% even though this is less than the standard variable rate. However if the rates fall below the capped rate (in example 6.5%) then your rate / payment falls in line with the new standard variable rate.
Variable Rate Mortgages
As the name implies your interest rate will vary depending upon interest rate movements, this means your payment can fall and rise
Discounted Rate Mortgages
This is a variable rate mortgage but with a discount off the standard rate. E.g. Standard rate 6.75%, discount 1.5% meaning your interest rate would be 5.25% variable.
Tracker Mortgages
Tracker mortgages again are variable and directly track certain interest rate movements, the most common being the Bank of England base rate. This means if the Bank of England change rates, your mortgage payment will alter accordingly.
Cash Gift Mortgages
A cash gift mortgage is where the lender gives you a lump sum for taking their mortgage and again you pay a variable rate.
Offset / Current Account Mortgages
An offset mortgage allows you to offset any savings you have against the balance you owe and you are charged interest on the lower figure E.g. Savings £20,000, mortgage balance £120,000, you pay interest on £100,000. Remember you will not be paid interest on your savings.
A current account mortgage is not dissimilar to the above. ie it offsets any credit balances you have, including wages etc. Another way to look at it is like a very large overdraft ie you have a limit. This facility means the amount you owe can vary daily and therefore the interest charges daily.
