Online Mortgage Advice - Accord Sales & Lettings

These Guides are given in good faith and without any future liability. It is recommended that aprofessional advice is sort before any financial transaction is undertaken and any information gained from this publication is checked as its nature is only in general terms. Any information is at best an overview and is not intended to be relied on.

CHOOSING A MORTGAGE

When it comes to choosing the right type of mortgage, it can be hard to know where
to start. Our guide is intended to be helpful in taking you through some of the various
options.

Repayment methods
There are two ways to make monthly repayments.

1. Interest only
You only ever pay interest on the capital (the amount you borrowed). At the end of
the term, you’ll need to have sufficient funds to repay the capital. Most people use
the proceeds of an investment plan to do this.
Pros: The money that you pay into your investment vehicle should grow sufficiently
to cover your debt to your lender.
Cons: Your investment may not perform sufficiently well to allow you to repay your
mortgage.

2. Repayment (also called Capital and Interest)
You start off paying the interest and a small amount of the capital each month, then
gradually pay off larger chunks of the capital. Repayments are higher than with an
interest-only mortgage – but with the latter, bear in mind the extra cost of building
up capital.
Pros: Often seen as the safe option; at the end of the term you will definitely have
paid back your loan, as long as you’ve kept up your repayments.
Cons: With this repayment method, there’s no potential investment windfall at the
end of the term.

Interest rates
The lender can charge interest in two ways:

1. Fixed rate
The rate is fixed for a set period of time, with the lowest rates usually being fixed
over shorter periods.
Pros: You know exactly what you’ll pay each month.
Cons: You could lose out if the lender’s standard variable rate drops below the rate
you’re locked into.

2. Capped rate
Your rate will go up and down in line with your lender’s standard variable rate (SVR),
but it will never rise above the ‘cap’.
Pros: You know the maximum amount you’ll pay during the capped rate period, and
if the lender’s SVR falls below the capped rate, you’ll pay the lowest rate for as long
as this is the case. If the lender’s SVR later rises above the cap, you’ll go back to
paying the capped rate.
Cons: If the SVR doesn’t drop beneath the cap, you may pay more than you would
on a fixed rate.

3. Discounted rate
You’ll receive a discount off the lender’s SVR for a certain period of time.
Pros: Lower repayments during the discount period.
Cons: Your repayments will still be variable, so you don’t have the certainty
of a fixed rate. Also, the repayments will switch to the lender’s SVR
when the discounted rate period ends, so you’ll need to adjust your budget
then.

4. Standard Variable Rate (SVR)
Slides up and down in line with general interest rates.
Pros: You should benefit from any drop in interest rates. There are usually no early repayment
charges.
Cons: SVRs are usually higher than the price of other products which may be more suitable
for you.

5. Tracker rate
These mortgages usually move in line with the Bank of England’s base rate rather than the
lender’s SVR.
Pros: You’ll benefit from general interest rate cuts, irrespective of whether your lender decides
to drop its mortgage rate in line with the base rate. There are usually no early repayment
charges.
Cons: Similarly, your rate will automatically rise if the base rate rises, whatever your lender
decides to do.

6. Offset mortgage
This is a type of flexible mortgage. Your current account and/or savings account credit
balances are linked to your mortgage and money in these accounts is offset against the
mortgage, so you only pay interest on the amount of your mortgage minus the credit balances.
Pros: You could save money by paying off your mortgage more quickly or reducing your
payments. The effective rate of return on credit balances in an offset arrangement may be
higher than you can get otherwise.
Cons: When you offset savings, you don’t earn interest. Products with lower interest rates
may be more suitable.
Whichever mortgage you choose, consider home and contents insurance and mortgage
repayment protection.
At Accord we are keen that our customers receive good advice please ask us for contact
names and telephone numbers.

How much can I borrow?
* The size of your deposit will affect how much you can borrow. In general, a large
deposit will help you to secure a good mortgage deal.
* People buying on their own can usually borrow three times their gross income.
* Joint applicants can usually borrow either three times the annual income of the
highest earner plus one times the other income(s), or two and a half times the joint
income.
* You’ll need to show six months’ worth of pay slips and bank statements to verify your
salary, and receipts showing that you’ve never been in arrears with your rent.
* If you’re self-employed, it’s usual practice for your lender to ask for two or even three
years’ audited accounts.
* People with a bad credit history will have less choice than other borrowers and may
find that they have to pay a higher rate of interest.
* If you’ve ever had a county court judgment against you, you may need to apply to a
specialist lender.

Cashback
These mortgages offer an incentive payment from the lender to the borrower on
completion of the loan. However, it is fair to warn that cashback schemes will tie the
borrower into a long redemption penalty which will be equivalent to the amount of
cashback given. That period of time can be considerable, depending on the size of the
cashback.
Often, borrowers can expect to receive five or six per cent of the loan amount as a
cashback figure, in return for which they will be tied into the lender's SVR or equivalent
rate for perhaps five to six years.
Overall, cashback mortgages are most suitable for borrowers that have limited up front
funds available, or that need money for home improvements or to purchase furniture.