Buying a house is usually the largest single transaction of our lives, and it can be a very stressful and time-consuming experience.

There are now so many banks, building societies, and smaller niche lenders competing for business, all offering a variety of interest rates and deals to attract borrowers, that it is almost impossible to know whether or not you actually have the best mortgage to suit your situation. And having the wrong mortgage could end up costing you more stress as well as thousands of pounds.

There are really only two ways of repaying a mortgage, - you either pay off the loan gradually over a number of years, or all at once at the end of the term. Many people combine these methods, and set up their mortgage on a ‘part and part' basis.

REPAYMENT MORTGAGES

With a repayment mortgage your monthly payments to the lender consist of some interest and some capital, so the amount of money you owe decreases. In the early years when the mortgage debt is greatest, most of each repayment is interest and so the outstanding amount reduces quite slowly. Later on, as the debt goes down, more and more capital is repaid.

Whilst this method ensures that the loan is repaid at the end of the term, it is generally more expensive each month.

INTEREST-ONLY MORTGAGES

With an interest-only mortgage you only repay the interest on the loan, and at the end of the term the capital is still outstanding. Therefore you need to make some arrangements to ensure the debt will eventually be cleared. Most people usually take out some kind of regular savings investment contract, running alongside the mortgage.

Traditionally the preferred product for repaying the capital of an interest only mortgage was a mortgage endowment policy, which had the advantage of providing life cover as well as the savings vehicle. More recently people are using monthly savings into ISAs and / or pensions to build up a sufficient lump sum, and taking advantage of the tax breaks offered by these products.

Whichever option you select, it is always recommended that the loan is ‘protected' with life assurance, a critical illness policy, disability cover and redundancy insurance.

EQUITY RELEASE

For many people in the UK , a large proportion of their wealth is tied up in the value or ‘equity' in their property and as people are living longer it is becoming more common to want access to this asset. The money released can be used for any purpose, to pay for an expensive operation, to carry out home improvements, to be invested to create more retirement income, or even used to buy a holiday home in the sun. Whatever the reason, there are many different options to consider, each with advantages and disadvantages, so great care should be taken.

The first option that should always be considered before entering into an ‘Equity Release' contract is to move into a smaller, cheaper property, and releasing some money that way. If this is not acceptable there are two other methods of achieving your aim:

MORTGAGE DEALS

There are various types of interest rate available, the most common are as follows:

Standard Variable Rate (SVR)

The SVR is the lender's standard rate, usually between 2.0% and 4.0% above the Bank of England base rate. With a variable rate mortgage you are able to switch lenders at any time without being penalised. If you agree a mortgage deal with a different type of interest rate, with is usually for an agreed term, you will go back to the SVR once that special deal expires.

Fixed Rate

A fixed rate mortgage allows you to repay interest at a specified rate, irrespective of any interest rate changes. In other words, your monthly repayments will remain the same every month for the agreed fixed time period, (anything from 1 to 25 years). Fixed rate mortgages often have high redemption penalties so you need to be sure that it will remain suitable for you for the foreseeable future.

Tracker

A tracker mortgage will track or follow any movement in the Bank of England Base Rate, so you will benefit from any falls in interest rates, but will also have to pay more if the rates increase.

Discount

A discounted mortgage rate means you will pay less than the lender's standard rate for an agreed period of time, usually two or three years. The interest rate still fluctuates, meaning your monthly repayments may change from month to month, but the percentage of the discount will remain constant.

Lifetime Mortgage

You retain the full ownership of the property and you will be charged interest on the amount you borrow. The interest can either be paid to the lender out of your income, or it can be 'rolled-up', thereby increasing the outstanding balance of the loan. The mortgage can normally be repaid at anytime, you can wait until when the property is sold, or your heirs will settle the debt after you've died.

A Home Reversion Plan

The providers of this type of plan will give you a lump sum or an income in return for a share in the ownership of your property. With this option, no interest is charged since the plan provider will get their money out of their share of the eventual sale. You can exchange or ‘sell' up to 100% of the ownership of your property, and your residence in the property is secure.

Your adviser can discuss all your options, how they impact on your circumstances and your estate, and recommend the most appropriate course of action for you.

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

The easy way to arrange a consultation with us:

Call us on FREEPHONE 0800 980 1795

or

email mortgages@haltoninsurance.co.uk