Which Mortgage Suits You?

by Giles Warren

Finding the right mortgage means finding a mortgage tailored to meet your needs, taking into consideration your lifestyle, age and financial situation.

Nevertheless, even after taking these factors into account, you will almost certainly be faced with an enormous variety of mortgages and differing interest rates.

Repayment

A Repayment Mortgage is structured so that the monthly mortgage payments, comprising partly of capital and interest, pay off the original amount borrowed as well as the interest that would be accrued over the mortgage term, by the end of the term.

• A Repayment Mortgage is clear-cut and uncomplicated.

• It is a sure-fire way of repaying the loan provided that all payments are made and kept up with.

• Total amount owed decreases with time.

• As interest rates go up in later years, it will not have as much influence on the amount owed due to the fact that the capital has decreased.

• It is not compulsory to arrange life cover to repay the mortgage.

• Even though life cover is not always requires, it is worthwhile to arrange at least term assurance to ensure the loan can be repaid in the event of your death and to avoid the house having to be sold in order to repay the mortgage.

Interest only

So called due to the fact that you only pay interest to the lender each month. The original loan amount remains the same for the term of the loan. Therefore, suitable investments are planned in order to repay the loan at the end of the term. These investments are arranged at the beginning of the term and they include Pension Mortgages, Endowment Mortgages, PEP Mortgages, ISA Mortgages and so on.

The amount originally borrowed on Interest Only mortgages does not change because you only pay off the capital at the end of the term. This is done by contributing to wards a "Repayment Vehicle"(i.e. the investment(s)) chosen which should bestow a sufficiently large sum to repay the loan at the end of the term.

Although there appear to be many types of Interest Only mortgages, this is only due to the fact that the name is associated to the relevant investment. Even though the investments vary, the general nature of the Interest Only mortgages remains the same.

• Investments are not guaranteed to appreciate so there is certain risk involved with the Interest Only.

• If the investment does not provide as good a return as was expected, it may not cover the loan. The onus is on you to ensure that you can repay the loan at the end of the term.

• Investments associated with Interest Only mortgages are portable, meaning that you can keep the investment, add to them and link them to a new mortgage it you move house.

• As a result of the original amount borrowed never going down, if you sell your house that amount will need to be repaid.

Flexible

This is a relatively new type of mortgage which, as the name suggests, is flexible. It is structured so that you can overpay, underpay and even take payment holidays without incurring any penalties. Most flexible mortgages have their interest calculated daily, bringing about the full benefits of overpaying. Regularly overpaying the Flexible Mortgage without later underpaying it could lead to the mortgage being paid off sooner and save you thousands of pounds in interest.

Although Flexible Mortgages fall into either Repayment or Interest only Mortgages, they have been included here due to all the options that come with them, e.g. overpaying/underpaying, payment holidays, pay off loan sooner, etc.

• Permits overpayments and underpayments on mortgages and allows all overpayments to be drawn back.

• Gives you the option to repay your loan before the end of the term by overpaying.

• Usually interest is calculated daily giving the benefit of saving money when overpayments are made, even if the money is drawn back at a later date.

• Allows you to vary the amount you pay,either overpaying it, under paying or taking payment holidays as long as you do not exceed your original mortgage threshold.

• Some enable you to use your mortgage account as a current account, giving you the ability to pool your money with the standard current account options of a cheque book and debit card.

• There are generally no penalties for redemption of the mortgage.

The main benefits are that you can vary your payments to adjust to your current financial situation and lifestyle. It has the potential to supply you with substantial interest payment savings and permits you to repay the load before the end of the term using regular overpayments, if you would like to. A flexible mortgage also provides you with an excellent place to house spare money, e.g.:annual bonus. This is due to the fact that interest saved on your loan will normally outweigh the amount you would normally receive from a savings account. Even prior to income tax which usually affects savings accounts.

There are three groups of people who can advise you. These are Independent Financial Advisers(IFAs), intermediaries(e.g. brokers) and the lenders themselves. However, the amount of advice each can give varies.

IFAs(such as Giles Warren Associates) can advise on all the issues, the mortgage, associated investments and insurance arrangements they can offer you a full range of products from all the financial services companies on the market.

Intermediaries such as brokers can generally advise on mortgages and will generally have links to companies who can advise and arrange the investment and insurance aspects.

Most mortgage lenders can advise only on the loan but some are tied to a life company and can therefore only arrange the associated investments and insurances through that company.

If we can be of any assistance in any of these areas, contact us as we offer Fixed, Discounted, Tracker, Variable and Cash Back mortgages to suit everyone's needs.

Telephone Giles Warren Associates at 01344 621888. Or email giles@gileswarren.co.uk.

Web: www.gileswarren.co.uk