Rivington Mortgages Which Mortgage ?
When it comes to choosing a mortgage, it can be difficult to know where to start. Rivington Mortgages offer a comprehensive guide that takes you through the various options.
Finding the right mortgage can be difficult, with thousands of loans to choose from. Make an appointment to see one of our advisors to discuss your needs.
Repayment methods
There are two ways to make monthly repayments.
Interest only
You pay only interest on the capital (the amount you borrowed). At the end of the term, you will need to have sufficient funds to repay the capital. Most people use the proceeds of an investment plan to do this. The benefit of this is the money that you pay into your investment vehicle should grow sufficiently to cover your debt to your lender and may provide an additional cash sum at the end of the mortgage term. The downside is your investment may not perform sufficiently well to allow you to repay your mortgage and you may have to find funds elsewhere to repay your loan.
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 an interest-only mortgage - but with the latter, bear in mind the extra cost of building capital. The benefit is this kind of mortgage often seems a safe option; at the end of the term you will definitely have paid back your loan, as long as you've kept up the repayments. The negative side of this mortgage is there's no potential investment windfall at the end of the term.
Interest rates
The lender can charge interest in various ways:
Fixed rate
The rate is fixed for a set period of time, with the lowest rates usually being fixed over shorter periods. The advantage is you know exactly what you'll pay each month during the fixed period. Any early repayment charge may be payable during any fixed, capped or discounted rate. You could lose out if the lender's Standard Variable Rate (SVR) drops below the rate you're locked into. At the end of the fixed rate period the rate will revert to the SVR.
Capped rate
Your rate will go up and down in line with your lender's SVR, but it will never rise above the 'cap'. The advantage is you know the maximum amount you'll pay during the capped rate period, and if the lenders SVR falls below the capped rate, you'll pay the lower rate as long as this is the case. If the lenders SVR later rises above the cap, you'll go back paying the capped rate. A disadvantage is if the SVR doesn't drop beneath the cap, you may pay more than you would on a fixed rate. At the end of the capped rate period the rate will revert to the SVR.
Discounted rate
You'll receive a discount off the lender's SVR for a certain period of time. The advantage is lower repayments during the discount period. The downside is your repayments will still be variable, so you don't have the certainty of a fixed rate. Also, the repayments will switch to the lenders SVR when the discounted rate period ends, so you'll need to adjust your budget then. At the end of the discounted rate period the rate will revert to the SVR.
Standard Variable Rate (SVR)
Moves up and down in line with the lenders variable rate. The advantage of this is you should benefit from any drop in interest. It may be a disadvantage that SVRs are usually higher than the cost of other products which may be more suitable for you.
Tracker rate
These mortgages usually move in line with the Bank of England's base rate rather than the lender's SVR. The benefit of this is you will gain from general interest 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. Similarly, your rate will automatically rise if the base rate rises.
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. The advantage of an offset mortgage is you could save money by paying off your mortgage more quickly provided your current account is in credit. The effective rate of return on credit balances in an offset arrangement may be higher than you can get otherwise. A disadvantage may be when you offset savings, you don't earn interest. Products with a lower interest rate may be more suitable.
Whichever mortgage you choose, consider home and contents insurance and mortgage payment protection. For insurance we arrange policies exclusively from Legal & General.
Please give us a call for advice on any of the above mortgages. We normally charge no fees for mortgage advice, although depending on your circumstances a fee of up to 1.5% of the mortgage amount may be charged.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
To find out more call us on 01204 699002
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