Mortgages
Mortgage rates, like all interest rates, can go up and down, and each change will affect your monthly payments. That’s why, instead of charging interest at the standard variable rate, many lenders offer various options to help you stay in control. Your adviser will have all the details.
The Standard Variable-Rate Mortgage
With this type of mortgage your payments go up and down as the mortgage rate changes. Mortgage interest rates tend to move in line with the base rate set by the Bank of England, but there is sometimes a delay.
This is similar to a standard variable rate mortgage but the rate is guaranteed to be a set amount above the Bank of England base rate and immediately alters with changes in that rate.
As the name implies, with this type of mortgage your rate is fixed for a stated period of time, so your mortgage payments are effectively ‘frozen’. This can help to make budgeting much easier, very helpful when you’re buying your first home or starting a family for example.
Many lenders offer discounts off their standard variable rate for a set period. This is a good way for borrowers to keep repayments lower in the early years of the mortgage.
With a capped mortgage your repayments can vary, but only up to an agreed limit. Once at this limit, if mortgage rates go higher, your repayments stay the same. If rates go down, so will your repayments. A variation on this is to include a ‘collar’. This is a rate below which your rate cannot fall.
Here, the lender offers a cash lump sum to new borrowers. The lump sum can be quite large – perhaps several thousand pounds. The cashback can be used in any way you wish, to pay for some essential items in your home such as carpets, a new kitchen or you can use it to buy a car or have a holiday. It’s up to you.
These can take many forms and, as the name suggests, are designed to be as flexible as possible. They offer the borrower a variety of repayment options, putting the buyer in control. The nature and extent of the flexibility differs from one lender to another.
Repayment (Capital & Interest) Mortgage
With this, you make monthly payments to the lender over an agreed number of years (called the mortgage ‘term’). Many mortgages last for 25 years but they can be for shorter or longer periods. Your payments gradually pay off the whole amount you have borrowed (called the ‘capital’ or the ‘principal’) as well as the interest. Provided you make all payments agreed with the lender, a repayment mortgage guarantees to repay the whole loan by the end of the term.
There is no built in life cover with this method and you will need to effect a life assurance policy to cover the amount borrowed should you die during the mortgage term.
With this, your monthly payments to the lender only cover the interest on the loan. They do not pay off any of the amount you have borrowed. This is why you usually make separate payments into a savings scheme each month to build up a lump sum. When the mortgage term ends (or earlier), you use the lump sum to pay off the amount you originally borrowed. It is your responsibility to make sure you have sufficient funds available to repay the loan at the end of its term.
When you are thinking about the repayment method there are many areas to consider. To help you decide what might be the most suitable method for you, we have set out some of the main advantages and disadvantages together with general comments on each method. You can have a combination of more than one of the methods we have mentioned.
To speak to one of our fully qualified independent financial advisers now either phone 0871 433 3700 or click the contact section on the bottom of this page and someone will speak to you straight away to help you with your mortgage choices.
YOUR HOME IS AT RISK IF YOU DO NOTKEEP UP REPAYMENTS ON A MORTGAGE OR OTHER LOAN SECURED ON IT.
Written details available on request.
Home Equity Release
Soaring property prices over the past decade mean that many retired people own homes worth tens or hundreds of thousands of pounds. Yet these same pensioners may be struggling to make ends meet.
Many elderly people could make their lives easier by unlocking some of the value tied up in their homes to boost their income. This is where equity release schemes can help.
How do equity release schemes work?
Homeowners sell a slice of the value of their homes in return for ready cash. This means they can raise money without the hassle of having to sell up and move to a smaller property.
Could I lose my home if things don’t go to plan?
This is the biggest worry for many retired people and it is not without foundation. Equity release schemes have a chequered history. Thousands of elderly people had their homes repossessed or were left in debt during the 1990s because inappropriate home income plans were sold.
Fortunately, from the crisis emerged an organisation called Safe Home Income Plans (SHIP). Established in 1991 it set up a code of practice to ensure that only safe equity release schemes were sold and that elderly people would never see their homes repossessed.
SHIP members offer contracts guaranteeing that plan holders will keep possession of their homes for life.
Who can take out a plan?
Most plans have conditions attached which may disqualify you from taking out a scheme. Conditions vary but may include a minimum age, which is typically 60, a minimum and maximum loan size and a minimum property value.
Some companies only accept applications from people living in freehold houses, rather than flats or maisonettes. Others only accept applications from people whose properties have been built using concrete materials such as cement or bricks. This means applications may be rejected if a property is wood-built, prefabricated or made from other non-traditional building materials.
What does it cost to take out a plan?
You will usually have to pay survey and legal fees. Homeowners may also have to pay the provider a fee for arranging the deal. We will advise you of all lender fees before you sign up for a scheme, however you should also check out the legal costs with a solicitor. You do not have to pay a fee to Grosvenor Waterford Ltd as we will receive introducer’s commissions from the lender.
Should I tell my family?
Whether to take out a plan of this kind should always be your decision. But it probably is a good idea to discuss it with close family members – the scheme will probably make a significant inroad into your estate and discussing this with family members who expect to inherit may avoid unpleasantness or misunderstandings
How do I choose a plan?
Independent Financial Advice should be taken in deciding which plan is the right plan.
To speak to one of our fully qualified independent financial advisers now either phone 0871 433 3700 or click the contact section on the bottom of this page and someone will speak to you straight away to help you with your equity release choices.
CHECK THAT THIS MORTGAGE WILL MEET YOUR NEEDS IF YOU WANT TO MOVE OR SELL YOUR HOME OR YOU WANT YOUR FAMILY TO INHERIT IT.
