- Estate Agent
Types of Mortgage
You should try to choose the type of mortgage that suits your lifestyle. This may depend on whether you are employed or self-employed; buying your first home, moving on, or simply want to re-mortgage your current home. Some of the options are: -
Capital and Interest mortgages (Repayment mortgages)
Your monthly payments go towards paying off both the interest and the original amount you borrowed (the capital). You make payments to the mortgage lender on a monthly basis, the payment consist of interest (which might vary) plus a portion of the money borrowed, as such the amount of the mortgage reduces every time.
If you keep up all your payments you are certain to clear your mortgage at the end of its term which is usually between 10 and 25 years.
Repayment mortgages provide a flexible repayment method as they may allow you to vary your repayments to suit your circumstances. Additional monthly repayments will reduce the overall term of the loan and you may be permitted to reduce your payments in times of hardship.
Investment Backed mortgages
With this method of repayment the payments you make to your lender represent interest only; the consequence of this unlike the repayment method is that none of the initial capital is repaid with the monthly repayments. You make a regular investment that will pay out at the same time as your mortgage ends e.g. an endowment or pension.
You make monthly contributions to the Issuer of the policy i.e. an assurance company which invests your premiums along with those of other investors in securities and hopefully the policy grows in value. As further premiums are invested the Assets in which they are invested hopefully increase in value, with the objective that the policy has accrued a sufficiently large enough value by the time it matures thereby releasing capital to you in order to repay the mortgage.
It is also generally possible to make lump sum payments to reduce the capital throughout the mortgage term but you should ask your lender when is the best time to do this. Remember your monthly payment is only interest, no capital is repaid in this manner so the endowment or pension policy is the means by which your mortgage will eventually be repaid.
It is your responsibility to make sure adequate arrangements are made to repay your mortgage when the time comes. If your investment arrangements do not cover the capital borrowed you will have to make up the difference yourself. If you do not have the means to do so you could ultimately have to sell your home to repay the capital. On the other hand if there is a surplus you get to keep it. You should take financial advice before choosing this type of mortgage. Recently financial performance of endowments has been insufficient to pay off mortgages to the extent few if any are now bought.
If you don't have a deposit there were a limited number of mortgage lenders who would lend the full purchase price of the property in the early 2000s. 100% loans are now rarely available.
Right to Buy mortgages
Tenants of Housing Executive properties can borrow to purchase at the discounted purchase price (up to 100%). If you want to borrow more to improve the property this is may be also possible.
Buy to Let (Investment) mortgages
It is possible to purchase one or more properties with a view to letting them out. This is available for individual or professional landlords. The maximum loan to value is usually around 75/85%.
Let to Buy mortgages
You may be able to let out your present property perhaps where circumstances dictate a bigger house or a move away for job relocation. This can be either with a view to a later sale or retention as an investment. It may also be useful when you may be unable to sell or perhaps the climate is not right to sell.
This is simply a method whereby you declare your income without any checks by the lender. It is most popularly used for the self-employed where historical accounts do not reflect the current income or trading position of the individual. It is also available if you are employed and part of your income is commission based. Interest rates are normally marginally higher than the standard rates available on conventional mortgages. The maximum loan to value is usually around 70%.
These schemes apply if you are a British national working abroad and wish to buy a home in the UK. The maximum loan to value is usually 75%.
Adverse Credit (or Bankruptcy) mortgages
This is for those that fall outside the criteria of the mainstream lenders due to past credit problems but now have no difficulty in managing their finances. If you have suffered previous arrears or have any County Court Judgements there are mortgage and loans available. The maximum loan to value is normally 75%.
A flexible mortgage lets you overpay if you want to top up your monthly repayments or pay off your mortgage more quickly. You can also request a break from your normal monthly payments. This type of scheme is ideal if you are not on a fixed income or if you want more versatility in your mortgage arrangements. Flexible mortgages tend to have variable rates of interest. Recently some lenders have also introduced all-in-one accounts where savings and borrowing are put into one account so as to reduce the level of borrowing.
With these types of mortgages the lender offers you a cash gift for taking out a mortgage with them. The cash gift is normally payable to you one month after taking out the new loan or on completion of the loan.
The above text is not intended to suggest or recommend any form or type of mortgage or financial product. Professional advice should always be taken from a mortgage broker or financial advisor. Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it.
Legal content supplied by Wilson Nesbitt Solicitors.