Mortgages

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Mortgages can be an overwhelming process, particularly when they are coupled with the jargon that goes alongside them. We believe it’s extremely important you understand every aspect of the mortgage process, to ensure you are completely happy with the financial commitment you are going to be entering into.

We have compiled some common jargon you may come across throughout your mortgage process, which should help you navigate through it with much more ease.

Fixed Rate Mortgages

A fixed rate is exactly what the name suggests. It’s an interest rate attached to your monthly mortgage payments that’s fixed for a certain period of time.

Most lenders will give you the choice of either a two, three or five year fixed rate mortgage. However, it’s worth noting that generally, the longer you take the fixed rate for, the more expensive it will be.

Fixed rates are very popular as the nature of them means you know exactly how much interest you will be paying each month, regardless of any other factors.

Variable Rate Mortgages

A variable rate mortgage is where the interest rate will fluctuate over time. It’s down to the bank to set the variable rate, which means it can go up or down at any given point.

Variable rates are a flexible option among the mortgage rates that are available, in the sense that you can usually pay off large lump sums of your mortgage when it suits you. However, this flexibility usually means your monthly payments will be more expensive than they are on a fixed rate.

Tracker Mortgage Rates

Tracker rates are an interest rate that correlates with the Bank of England’s base rate. The base rate is something that’s used to control inflation (a measure of how the cost of goods go up over time).

Essentially, the Bank of England meets once a month to decide what’s going to happen to the base rate. If you are on a tracker rate, your interest rate would track a certain percentage above the Bank of England base rate. If the base rate goes up, so too will your mortgage rate and if it comes down, your mortgage rate will also decrease.

Discounted rates work in a similar way to tracker rates, except your interest rate will be a discount off the lenders standard variable rate (SVR).

Offset Mortgages

An offset mortgage is where your bank will open up a savings account that runs alongside your mortgage and you can use any savings that are in the account to offset your mortgage balance.

An example of this would be if you had a mortgage of £200k and you had £50k in your savings account, you would offset those savings so you would only pay interest on £150k of the mortgage. If you then withdrew money from your savings account, the interest rate you pay would be reflective of this.

Capital Repayment vs. Interest Only Repayment

The most common repayment type for mortgages is capital repayment. This is where you make a monthly payment which equals an amount of the original mortgage sum you borrowed plus interest. At the end of the mortgage term, you will have paid your mortgage off in full.

As the name suggests, an interest-only mortgage is where you are only paying the interest that is accrued on the loan each month and the amount you initially borrowed as the mortgage isn’t paid off for the entire mortgage term. Once you reach the end of your term, you need to repay the mortgage in full through a lump sum.

Since the recession, banks don’t often engage in interest only repayment mortgages.

However, they are more common in buy to let mortgages as you mitigate the need to pay for your mortgage in full each month (with interest added on top) if the house you are renting out isn’t occupied by a paying tenant.

Mortgage Features

There is often some jargon around the features of mortgages, such as flexible mortgages, cashback, overpayments and payment breaks.

Flexible mortgages – These are mortgages that allow you to make overpayments. You are essentially unrestricted on how much you can overpay.

Cashback – this is usually used by banks to entice you to take a mortgage out with them. They essentially offer you a sum of cashback to spend on whatever you wish. A lot of people tend to use this money to pay for solicitors fees they incur throughout the mortgage process.

Payment holidays – where the bank allows you to skip mortgage payments for a certain period of time (usually banks accept payment holidays of up to 6 months). However, the payments you skip get added back onto your mortgage balance, which means your balance will increase. Most banks would only let you take a payment holiday if you had previously made overpayments on your mortgage.

What’s the role of a Mortgage Broker?

A good Mortgage Broker should be able to help you throughout your entire mortgage journey. It’s not just about finding you the best deal, it’s about ensuring the right steps are taken so everything happens exactly when it should.

There’s a lot of information available on the internet regarding mortgages and it can be common to think they are easy to obtain without the help of a professional. While this may be the case in very simple instances, most of the time mortgages are complicated products and you will need the help of a Mortgage Broker to help you navigate through it – particularly if you want to come out of the other side with a good mortgage deal.

Mortgage Brokers also have access to a vast market of lenders. It can be common for people to go straight to their highstreet bank when they are looking for a mortgage deal, but we often see clients get declined by their own bank – they then automatically assume they can’t get a mortgage and no longer look to buy a house. Mortgage brokers have access to a panel of specialist lenders who will have varying lending criterias, which automatically increases your chances of getting accepted.B

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.