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MORTGAGES

Mortgages

A mortgage is a debt secured against property and you might pay the interest on the amount only or a on a capital repayment basis.

An Interest only Mortgage is where the interest on the debt is paid and at the end of an agreed period the capital has to be repaid. The monthly payments are cheaper than a repayment mortgage however; there must be some way to repay the capital.

For example a 10 year, £100,000 interest only mortgage may cost £500 per month but this would only pay the interest. At the end of 10 years the £100,000 capital would still need to be repaid, this can be done by regularly saving into a pension or an ISA.

A repayment mortgage is a more conventional mortgage and this is where the interest and the capital are repaid over the agreed term. The monthly repayments will be higher than an interest only mortgage.

Interest only mortgages are more difficult to obtain in today's market place. The rate you pay on the mortgage will depend on what type of mortgage you need and overall interest rates (base rates) at the time.

Some of the different types of interest rates you can opt for are:-

Fixed rate: This is where you pay the same interest rate for a set period of time and it will not change, even if the base rates were to increase or decrease. This type of mortgage allows you to know your monthly repayments.

Typical fixed rate periods are between 2 and 10 years. Once your fixed rate has come to an end, the mortgage provider will put you on their standard variable rate.

Variable Rate: This is where the interest rate you pay will vary and thus your repayment will change. Most providers have a Standard Variable Rate (SVR), this is a rate of their own choosing and they can increase or decrease this rate at any time.

Discount rate: This is an offer from the mortgage company at a discount off of their SVR. So, if the SVR is 4% and they offer you a 1% discount then you will pay 3%

Capped Rate: This is where you will pay the SVR up to a specific level. So, if the SVR was 4% and you have a capped rate up to 3% then 3% is what you would pay.

Tracker Rate: This is where the rate you pay will change in line with another interest rate, normally the bank of England base rate. So if the Bank of England base rate increases by 0.5% then the rate you will pay will increase accordingly and thus so will your repayment.

Early repayment charges are normally applied if you want to move on to a different interest rate within your current deal.

 

JDFC do not give mortgage advice but will be happy to refer you to an experienced mortgage broker that we have worked with for a many number of years that has given our clients excellent service.  

 

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The guidance and/or advice contained within the website is subject to the UK regulatory regime and is therefore primarily targeted at customers in the UK. Further consumer information is available from the Financial Conduct Authority via the following link - click here