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Pink Guide to Mortgages
Despite the abundance of choices there are basically two main types of mortgage:
In our aim to provide you with clear, relevant and useful
information we have produced the Axiom guide to mortgage choices. Even
if you are not buying a property now, keep this safe as it could be invaluable
in the future. Mortgage Choice Repayment The borrower is required to pay both interest and capital during the term of the mortgage. At the end of the term the mortgage will be repaid. Flexible Mortgages Can be either repayment or interest only. Flexibility comes in the borrower's ability to pay off lump sums and/or defer payments. Interest Only Only interest is paid during the term of the mortgage.
The capital outstanding will remain the same. At the same time the borrower
will invest in a vehicle, such as an Endowment, Pension or ISA, that will
be intended to grow to a level sufficient to repay the capital at the
end of the term. This depends on fund performance that is not guaranteed. Interest Rate Choices Variable Rate The rate will move up and down in line with the interest rates in general. Fixed Rate The rate is fixed for a certain period. You are protected from fluctuations associated with variable rates, but may be disadvantaged when rates fall; and suffer penalties if you wish to redeem or change the type of loan. Discounted Rate This is a variable rate where, for a fixed period,
the rate is reduced by a certain amount. You may suffer penalties if you
wish to redeem or change the type of loan. Capped and Collar The cap sets a maximum rate and the collar a minimum rate. Fluctuations are thus reduced, though not eliminated. The advantage is that redemption penalties are not usually as severe as for fixed rates. Low Start Not to be confused with discounted rates. The repayments are reduced in the first few years, but the full cost is, in effect spread forward to later years. Hidden Costs One commonly overlooked area when taking a mortgage are the hidden costs. These can add up to hundreds of pounds. Within the explanations you will find a few handy hints to maybe save you some of your hard earned cash. Valuation Fee This is a fee charged in order that the lender can
ascertain the value of the property being purchased. Compare lenders,
as some will refund this fee on completion of your purchase. If you are
aware of a previous interest in a property, check to see if a survey has
already been done. You could offer to buy it from them, saving you money. Solicitor's Fees A solicitor is necessary to complete the land registry procedures and conduct a local authority search to check that a motorway is not about to be built on your new home. They will liase with the person selling the property and also handle the transfer of any finance. I suggest you shop around as fees vary. Some of the fees, such as the search, are standard, but each solicitor will charge differently for their own personal services. Mortgage Indemnity Guarantee This is a fee payable by you for the benefit of the lender, this insures against the lender losing money. This would pay their losses if they were forced to sell the property in the event of you defaulting.(damn cheek!!!). I would compare closely at what point they start to demand this charge. Lenders only introduce this fee once your borrowing has exceeded a certain value against the property- for example 80% or 90%. There are a few who don't ask for this fee. Speak to an Independent Financial Adviser for more details. Redemption Penalties Many mortgages offer low initial interest rates or special fixed rates only to have redemption penalties that often tie you for further years. Breaking these promises can be costly, have this aspect explained clearly. Even though they are not easy to find, it is possible to find reasonable offers without a redemption penalty applied. Application Fee Often referred to as a Booking Fee. This is a charge that is levied by a lender in order for you to secure a fixed rate. It is used as a sign of your commitment to a deal. This can be any amount that a lender chooses. It is not unusual for this to be around £200 to £300. Before you pay this fee make sure you are certain this is the rate that you want. This is often non- returnable. Compulsory Insurance Some lenders make insurances a compulsory part of the package. Buildings and Contents are a prime example of this. It is not unusual for Banks and Building Societies to charge premiums up to 40% higher than specialist insurance companies. Source CETA 7.99 Life Assurance Lenders often demand that the loan is covered with
life assurance. If this is a requirement of the loan it is unlikely that
you have to take theirs. It is not unusual for life insurance premiums
to double on the client declaring his sexuality. This is where a gay financial
adviser is worth his weight in gold. He will know which life assurance
companies will not ask any personal questions. |
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Everyone
agrees that choice is a good thing - but where do you draw the line? The
amount of mortgage choices that currently exist are positively bewildering.
I often see customers who are faced with so many choices that they are
not sure which is best for them.
The
main variations are usually to do with flexibility, choice of investment
vehicle and the many interest payment options. Hidden costs are another
area of concern that should be looked at closely. These can often add
hundreds of pounds to the overall cost of the deal, resulting in additional
interest payments throughout the term of the loan. 