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The Advice
For most individuals, their mortgage is their greatest financial commitment, however many people still rely on one company’s advice and products (e.g. their bank) to find the most suitable mortgage. In contrast, we are not restricted to certain lenders and research the entire mortgage market for the most suitable deal.
The regulated mortgage industry requires borrowers to fully appraise every mortgage adviser that they speak to of their financial circumstances before any mortgage advice can be given. The borrower only has to go through this process once with an independent firm like Winnell Douglas Ltd.
The Types of Mortgage
The most important points are how you pay back the capital you borrow and how you pay the interest on it.
Paying back the capital
You can either pay a little at a time as you go (repayment mortgage) or pay it all off at the end with an interest only mortgage (Endowment, ISA and pension mortgages).
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Repayment mortgages - each monthly payment pays off a little of the underlying debt, as well as interest on the loan. At the end of the term as long as all payments have been made, the mortgage is repaid in full.
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Endowment Mortgages - use an endowment policy to provide life insurance and build funds to repay the loan at the end of the term (usually around 25 years). If the investment performs badly, you could face a shortfall on your loan at the end of the repayment period.
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Individual Savings Account (ISA) mortgages - work on the same principle as endowments, but use an Individual Savings Account as the loan repayment method and life insurance is not included. If your investment performs badly you could face a shortfall at the end of the mortgage term.
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Pension mortgages are similar, but work on the basis that pensions (both private and company) provide tax-free cash on retirement. At the end of the mortgage term the loan is paid out of your tax-free lump sum.
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Offset Mortgages - your mortgage debt is set against your savings. As a result, instead of earning interest on your savings, you pay less interest on your mortgage. Offsetting is a great way of reducing the term of your mortgage and paying less interest. However, it can also be hugely beneficial for taxpayers. Income tax is payable on savings interest, but because you don't earn any interest on savings in an offset account, there is no tax to pay.
Paying the interest
You have to pay interest on any debt, and mortgages are no different. They differ only in the range of options offered.
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Variable rates - mean you pay the ‘going rate’ on your loan. The mortgage rate changes every time interest rates change or, the overall effect of any interest rate changes is calculated once a year and payments are altered accordingly. Whatever kind of mortgage you start with, it is likely to change to variable rates at some point.
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Fixed rates - are what they say. The interest rate is fixed for the period agreed, often two to five years, or could be as long as 10 years. These are ideal for budgeting or if you think rates might increase. You do not benefit if rates fall, and may face penalties if you try to change the mortgage whilst still in the fixed rate period.
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Capped rates - have a fixed maximum rate, but if rates fall you pay the lower rate. Such deals can be a good buy for budgeting. However, it is likely that you will face penalties if you try to change the mortgage whilst still in the capped rate period.
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Discounted rates - offer a discount off the lender's variable rate. The rate you pay will fluctuate in line with changes in the variable rate. The discount applies over a set term.
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Tracker rates – like a discount in terms of the variable nature but tent to follow the Bank of England base rate rather than the lender’s standard variable rate
In addition you should consider protecting the mortgage against the financial effect of you suffering a serious illness or dying during the term of your mortgage.
Although we hope that this site has been very informative for you, mortgage requirements will be different for everyone, and it is important that you seek expert advice regarding the most appropriate option.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Please contact us to arrange a meeting if
you wish to discuss your mortgage requirements.
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