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At any one time there may be well over 2,000 different
mortgage options, only some of which will meet your needs.
We use powerful computer databases to sort through the vast range of mortgages
and identify the best ones for you, in terms of their features and benefits,
and also your own personal circumstances.
There are several elements to be considered when choosing a mortgage such as
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- The interest rate charged now - and in the future
- Charges for early repayment of the mortgage
- The Mortgage Indemnity Guarantee Premium
- Whether to repay capital and interest or interest
only
- Selecting the right insurance policy
It is important to assess whether the repayment
will be affordable in the future should the rate rise well above
the current low rates that have been maintained for some time.
However, it is not that long ago that interest rates were over
15% - that is nearly three times the current rate. You can therefore
use our mortgage calculators to assess these potential costs and
how a variation in the Mortgage Term, Mortgage Amount, Growth Rate
and Interest Rate affect the actual costs that you pay.
As an independent financial adviser, we are in the best position
to ensure that you select the mortgage that best suits you. We
have technology in place that enables us to search the entire mortgage
market in a matter of seconds and rank the results in terms of
cost, affordability, maximum loans available and various other
criteria. To help you understand the mortgage market, here is a
description of each type of mortgage scheme.
There are two elements to a mortgage :-
- How the interest is charged
- How the mortgage is protected and repaid
Variable rate is where the
rate goes up and down in line with external influences such as
the bank base rate. However, you should be prepared for rates
to increase during the mortgage term and they can change by a
factor of two or even more.
Most mortgage lenders offer some form of variable rates with an
initial discount for a period of months or years. Generally, the
longer the reduced or fixed period, the more you pay.
Fixed Rate Mortgages can have the interest rate from just a few
months to the entire 25 years. Many fixed rates are lower than
the standard variable rate, but with the longer the fixed term
fixed rates, the interest can be higher than the current mortgage
interest rate. You are gambling the interest rates will rise much
higher that your Fixed Rate in the long term.
Fixed rates mean you know exactly how much you will pay each month
for a fixed period but bear in mind that if interest rates drop
below your Fixed Rate you will be paying more money. Beware of
early repayment penalties which are several months' interest payable
if you cash in your mortgage early.
This means that, despite the fact that interest rates may well
rise, you are given a rate beyond which you not be will be charged
for a period of years or even until the end of the mortgage period.
Capped rates can have a "collar" which means they will
not go below an certain rate either for that period. Again, watch
out for early repayment penalties.
This is effectively a bribe to get you to take out a mortgage with
that company. Be careful, though, as there are usually changes
in interest rates that mean it could be recovered in part or in
whole later on.
With a repayment mortgage you pay part of the capital with each
payment and the interest on the outstanding amount. Naturally the
payment, which is normally fixed, pays more capital and less interest
as the debt reduces over the years.
It is important to remember that, as the years go by, with this
method you actually owe less and less and , providing you continue
to make all your monthly payments in full, the loan will be paid
off at the end of the agreed term which you can decide but it is
normally 25 years.
If move home or re-mortgage, you would have to take out a new loan,
and re-commence repayments.
With this form of mortgage, you only pay the interest due to the
lender each month and your debt stays the same throughout the mortgage
term.
However, the advantage is that the monthly payments to your lender
are lower than for a repayment mortgage, but you will have to clear
the debt at the end of the term with either a profit-making life
policy, and investment like an ISA or from a pension fund tax free
lump sum payment.
An endowment is a life policy with an investment element that will
pay off the loan if you die before the end of the mortgage term
but will build a fund that is designed (but not guaranteed) to
pay off the mortgage by the end of the mortgage term, if you survive.
You could select a With Profits policy that invests your premiums
and pay annual bonuses which will be added to your fund. At the
end of the term, there is normally a terminal bonus before the
final payout. With Profits policies were designed to be safer and
offer reliable growth, but bonuses cannot be guaranteed..
With Unit Linked policies, your premiums buy stocks and shares
and, as the prices of these units are published daily, you are
able to see the value of your fund at any time. As with all investments,
the value of your fund may go down as well as up but these generally
produce higher growth in the log-term, but with a higher risk.
Unitised With Profits was the halfway house between the two where
your premiums buy units but in a With Profits fund, rather than
the more risky stock market funds, however bonuses again cannot
be guaranteed.
Unfortunately, the effect of low interest rates and investment
returns over the last 5 years has adversely affected the amounts
available at the end of the policy term and many investors have
been left with shortfalls on their mortgage.
Any endowment policy is designed for the long term but should your
circumstances change or you are concerned about potential shortfalls,
seek our advice before you cash in your endowment as there are
companies that can offer higher amounts than the issuing life company.
These are called Traded Endowments and we will assist you in getting
the highest return.
Up until April 1999 it was possible to use a Personal Equity Plan
to pay off your mortgage and you are still able to use existing
PEPs for this purpose, but you can now use an Individual Savings
Account, better known as an ISA with its tax benefits to create
an investment fund to eventually pay off your mortgage.
However, don't forget that this form of investment does not include
any life cover so this must be provided separately.
As always, the value of your investment may go down as well as
up but if you have any potential shortfall, we can advise you on
an alternative or additional source of mortgage repayment.
You can use the tax-free cash offered by a pension to repay a mortgage
and Personal Pensions give you certain tax concessions that make
them very cost-effective.
However, you should be aware that you are in fact using money that
may have been set aside for your retirement to clear the mortgage
debt.
You can use virtually any investment product to help repay your
mortgage including Unit Trusts, OEICs, shares or you might even
rely on an inheritance to provide the funds to pay off your mortgage
providing you are reasonably sure that you will have sufficient
funds in time to repay the loan.
Whatever mortgage you decide on, remember that this is probably
the largest purchase decision that you will make in your life so
contact us as your Independent Financial Advisers to guide you
through the maze.
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