Mortgages
A mortgage may be the largest financial commitment you will have in your whole life. It is important therefore that you seek professional advice when considering taking out a mortgage.
Gregory Adam Financial Management Can Offer You Full Advice About:
- Affordability
- Type of loan and best interest rate
- Repayment method
We can also assist you with:
- Securing the mortgage with a lender
- Liaising with Estate Agent and Solicitors involved in the transaction
- Further advances
- Guarantor mortgages
- Second home mortgages
- Buy to Let mortgages
We have full sourcing software which enables us to locate the current “best deals” and provide you with a fully compliant “key facts illustration”
Affordability
Most lenders calculate the maximum they are willing to lend based upon your ability to fund the loan repayments. Whilst this may be based on a multiple of income, it is more commonly calculated by them using an internal credit formula. Typically however, most lenders will allow a single person to borrow between 3 and 4 times their income, and joint applicants to borrow between 2.5 and 3.5 times their joint earnings.
You can find out the cost of borrowing using our calculator here.
This calculator has been provided for your guidance only. Its use does not represent any offer of a mortgage advance.
If you are seeking a mortgage loan, then you must make a formal application to an appropriate mortgage lender, who will consider your application in accordance with their lending criteria.
Mortgage loans are normally subject to a formal valuation of the property and proof of your earnings.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Back to Top
Type of Loan and best interest rate
There are many types of mortgage interest rates and deals available. Common examples are the following:
Fixed Rate
The lender offers you a mortgage with an interest rate which is fixed at outset for a stated term (commonly 2 years, 3 years or 5 years). At the end of the term your mortgage will revert to the lenders standard mortgage rate. This type of arrangement will mean that you will know in advance exactly what your mortgage payments will be during the fixed rate period. If mortgage rates alter your mortgage payment will not alter.
Bank Base Rate Tracker
The lender offers you a mortgage with an interest rate which is linked at outset to the rate of the Bank of England Base Rate for a stated term (commonly 2 years, 3 years or 5 years) or sometimes for the lifetime of the mortgage. At the end of the term your mortgage will revert to the lenders standard mortgage rate. This type of arrangement will mean that your mortgage payment will fluctuate if Bank Base Rate changes. If BBR goes up your mortgage payment will go up, if BBR goes down then so will your mortgage payment.
Discounted Rate
The lender offers you a mortgage with an interest rate which is linked at outset to the rate lenders own standard mortgage rate for a stated term (commonly 2 years, 3 years or 5 years). At the end of the term your mortgage will revert to the lenders standard mortgage rate. This type of arrangement will mean that your mortgage payment will fluctuate if the lenders own standard mortgage rate changes. If it goes up your mortgage payment will go up, if it goes down then so will your mortgage payment.
Capped Rate
Similar to a discounted or tracker rate, the lender offers you a mortgage with an interest rate which is linked at outset to either the Bank of England Base Rate or the rate lenders own standard mortgage rate for a stated term (commonly 2 years, 3 years or 5 years). However, there will also be a maximum interest rate limit which cannot be breached. This is known as the cap. Sometimes, there is also a minimum interest rate that your payment will not go below this is known as the collar. At the end of the term your mortgage will revert to the lenders standard mortgage rate. This type of arrangement will mean that your mortgage payment will fluctuate in line with the rate it is linked to, but if the cap is reached then it will go no higher. If the interest rate goes up your mortgage payment will go up (to a maximum of the capped rate), if it goes down then so will your mortgage payment, so long as the collar is not exceeded.
Repayment Method
There are two methods of repaying your mortgage:
Capital and Interest Repayment
You will pay back on a monthly basis interest based on the outstanding loan, plus a calculated amount of capital. In the early years you will mainly be paying back interest, in the later years a larger amount of capital will be repaid. The monthly payment is calculated over the mortgage term, so that it remains constant (subject to no change in interest rates). This method will guarantee repayment of the mortgage at the end of the term so long as all payments are met and paid on time.
Interest Only Mortgage
You will make a payment relating to the interest due in respect of the loan amount borrowed only. You will not be repaying any capital, and a lump sum equivalent to the original loan amount must be found at the end of the mortgage term.
When taking out an interest only mortgage it is usual to take out a supporting investment vehicle, designed to build up the required lump sum at the end of the payment term. Regular reviews of the investment vehicle must be undertaken, as these are normally linked to stockmarket returns, and thus can fall short of early projections. Types of vehicles often used include, endowment policies, ISA and unit trusts, tax free lump sums from pension plans.
In certain situations, a repayment vehicle may not be required, if for example the plan is to sell the property to repay the loan, or if an inheritance is expected before the loan is due to be repaid.
Some lenders will only set up an interest only loan with proof of the supporting repayment vehicle, and many also limit the amount that can be taken on this basis.
Back to Top
|
