Download to read offline
Mortgages Explained
- 1.
- 2. IntroductionA mortgage isa loan secured on propertyTypical term of 25 yearsThe most important points to consider are:Remember, if you do not keep up repayments on a mortgage, you could lose your housewww.footes-financialplanning.co.ukHow you pay the interest on the loanHow you pay back the money you borrowed
- 3. Types of mortgagewww.footes-financialplanning.co.ukFixedRate Fixes the repayment for a set term, e.g: 3 years
- 4. Enables you tobudget in the early years regardless of interest rate changes
- 5. Level isset based on expectations for interest rates over the termTypes of mortgageswww.footes-financialplanning.co.ukDiscounted Variable Rate Offers a discount on the providers standard variable rate for a fixed term
- 6. For example –0.5% for 3 years
- 7. Can be higherdiscount for shorter periods
- 8. Can be a‘loss leader’ for providers to gain businessTypes of mortgagewww.footes-financialplanning.co.ukTracker Interest rate payable is linked directly to Bank of England base rates
- 9. Typically baserate + 0.5% or + 1.0%
- 10. Link remainsin place for entire term of the mortgageTypes of mortgagewww.footes-financialplanning.co.ukCapped rate Usually tracks the provider’s standard variable but will not exceed a pre-agreed level with a set term Popular when interest rates are rising as borrowers want to limit how high their payments could go
- 11. Types of mortgagewww.footes-financialplanning.co.ukFlexiblemortgageAllows overpayment, underpayment and payment holidays (subject to conditions)Enables you to decide the payment plan to suit circumstances
- 12. Overpay withbonuses, inheritances or regularly with savings made elsewhere
- 13. Underpay overChristmas, the summer holidays or if earned income falls for a short period (eg: maternity leave/redundancy) Interest payable as capital is paid off
- 14. Can helpyou pay off the mortgage early and save pounds in interestTypes of mortgagewww.footes-financialplanning.co.ukOffset Enables you to ‘offset’ savings against your mortgage without actually paying the capital amount off Zero interest is paid on the savings account, BUT
- 15. No interestis charged on the equivalent amount on the mortgage
- 16. Net effectis your savings interest to the level of mortgage interest charged
- 17. Could offertax benefits as no interest is being received on savingsInterest charged on £140000Mortgage £150000£600 paSaving on mortgage payments ²Savings £10000
- 18. Repaying the capitalwww.footes-financialplanning.co.ukRepaymentmortgageInterest only mortgageOther ways to repay capital Each payment pays of a bit of the debt and interest on the loan
- 19. At theend of the term the mortgage is guaranteed to be repaid
- 20. You pay justthe interest payments every month and make other provision to pay off the capital at the end of the mortgage term Individual Savings Account
- 21. Unit trust/mutual fund investment
- 22.
- 23. Sale ofproperty