Mortgage Types/Jargon Busting
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Mortgage Types and Jargon Busting
There are a lot of different terms flying around the mortgage market and it is important to know what mortgage lenders are talking about. There are many different types of mortgages available all regulated by the financial conduct authority, it is just finding the right one for you. When you apply for a mortgage it would be worth getting in touch with a mortgage broker to help with finances and the exchange of contracts.
Standard Variable Rate (SVR)
It is the standard rate that a lender will set the SVR rate which generally guides the level at which they offer their products. If you finish a different rate, a fixed rate or discounted rate for example, you will usually be put onto the SVR unless you search for better deals.
The SVR is not usually the best deal you can be on as the lender can choose this rate and increase it whenever they please.
Fixed Rate Mortgage
A fixed rate mortgage is just as it sounds, a fixed interest rate for a set amount of time. You can pick the amount of time that you are fixed for, typically, the shorter the term you fix for the lower the interest rates will be.
The benefit of this rate is that regardless of what happens in the mortgage market your mortgage repayments will not change. This means that you will be able to budget and plan ahead knowing what your outgoings will be each month.
Variable Rate Mortgage
A variable rate mortgage is a rate which can move up and down as the lender pleases. The lender will pick their own Standard Variable Rate.
A tracker mortgage tracks the Bank of England’s base rate and lenders will offer a percentage more of the rate. It means that if the Bank of England’s base rate moves then your mortgage repayments will change too. Tracker rates tend to last for a few years and are not long term.
Discounted Rate Mortgage
A discounted rate is a discount off of the lenders typical Standard Variable Rate for a set amount of time. For example, if their SVR is set at 3.6% and you are offered a 1% discount, your pay rate would be 2.6%. Once discounted rates ended, they will return to the SVR rate.
With an offset mortgage you effectively have two accounts, one being your mortgage account and another your savings. Your cash savings will be used to offset your mortgage balance by reducing the amount of interest you are paying on your mortgage repayments. For example, if you have a £150,000 mortgage alongside £50,000 in savings, you will only be charged on £100,000 for your mortgage because the savings are offsetting.
Offsetting your mortgage is a good option if you have a lot of capital in savings. You can still access your savings, but keep in mind that lowering the balance will affect how much you are offsetting your mortgage.
Capital Repayment Mortgage
Each month when you make your mortgage repayments you pay part capital and part interest to the lender. This means that you are paying off the original loan and the added interest whilst utilising the property. If you have a 25-year repayment mortgage, as long as you keep up with the repayments, you should own the property by the end of the mortgage term.
Interest Only Mortgage
If you opt for an interest only repayment, then you will have lower repayments each month. This is because you are only paying the added interest payments each month and nothing off of the original loan amount. You must keep in mind that the original amount will be due at the end of the mortgage term.
A flexible mortgage typically incorporates all of the features that lenders offer to seem more attractive. These features include, over payments, payment holidays and offer no set time periods.
Lenders used to give a percentage of cash back from the mortgage once it has been accepted as a feature. Now lenders will offer between £250 – £1000 as a cash incentive to pick them as your lender.
You may want to make an overpayment one month to pay off more of your mortgage. This however does affect interest rates and many lenders will make you pay an early repayment charge. Lenders have started offering overpayments to be made with no fees as an incentive, which is a feature found in flexible mortgages.
Some lenders will offer payment breaks as standard in part of your mortgage agreement. Payment breaks can be useful for a few months if something has happened and you need to use the money you would usually put towards repayments elsewhere. It is worth keeping in mind that the break will come to an end and you can build up interest the longer you do not make payments.
There are a lot of different mortgage schemes available on the mortgage market. Below are a few you might come across while searching for your mortgage.
You can use a guarantor alongside your mortgage application if your income is slightly lower, you have bad credit or need that extra security. A guarantor will be liable to make repayments on your mortgage if you cannot.
Family Assist Mortgages
There are only a handful of lenders that offer family assist mortgages. It is when a parent can help their children onto the housing market by putting a sum of capital in a savings account as a deposit.
Typically, the money will be in the account for five years and then will be released back to the parents once the applicant can take on the mortgage. It acts as a safety net for lenders to see that there is collateral there to collect. You can also build interest on the savings in the account.
Help To Buy
The Help to Buy scheme is one of the most popular schemes available however it only applies to new build properties for first time buyers now. It is when you put down 5% of the property’s value as a deposit and then the government will then give you an interest free loan of 20% of the property’s value for the first 5 years.
An applicant will purchase a share in a property, this can be as small as 25%. The rest of the property will usually be owned by the housing association which means you will have to pay rent towards this. The share of the property you own you can set up a mortgage for. It is a good way onto the property ladder if you are a single applicant who cannot afford a property alone outright.
You will have the option to be able to buy the housing association out of ownership too meaning you can own 100% of the property.
Right to Buy
If you are living in a council owned house, you may have the right to buy. This is where you will get the right to buy at a discounted value due to having lived there for an amount of time. The longer that you live there, the more discount you can accrue. It allows you to have the option to eventually own your home.
Now the discounts will vary depending on the length of time the person has been a tenant and is subject to a cap across the UK, which is capped at a hundred and eight in London, maximum discount of eighty five thousand nine hundred in the rest of England and a maximum cap of twenty four per cent in Northern Ireland.
Right to Acquire
This is a new scheme quite similar to right to buy. The only difference is the discount rates are usually lower. If you are a council tenant wanting to buy the property you are living in, the right to acquire or right to buy could be the option for you.
Why Should I speak to a Mortgage Broker?
A mortgage broker can help guide you to the right mortgage for you. They have knowledge of the mortgage market and can help filter and search through lenders to find the right one for you.
They will be able to help you budget too and will ensure you are making applications for mortgages that you can afford. It doesn’t cost anything for general enquiries and a broker fee will usually only incur once the mortgage application actually begins.
There is nothing worse than falling in love with a property and then being told no. To save yourself the disappointment of rejection it is worth getting in touch from the moment you know you are looking for a mortgage.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
YOUR HOME/PROPERTY MAYBE REPOSSESSED IF YOU DO NOT KEEP UP WITH REPAYMENTS ON YOUR MORTGAGE
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