The Mortgage Shop UK Mortgage Information Mortgage & Insurance Information, FREEPHONE 0800 092 0800

Mortgage & Insurance Information

 

What mortgages & insurances are, how they work and what is required with them is a lengthy assessment which is best arranged specifically for your needs, this is normally arranged through qualified adviser fact finding. Here however we give you some outline details and explain briefly what types of mortgage rates, and repayment types are available and which insurances you are likely to come across in your home buying transaction. Click a link below to transfer sections.


Mortgages

A mortgage is simply a loan secured against a property.

Mortgages are primarily offered by Banks and Building Societies but having said this often large financial organisations offer funding through adviser only channels at slightly better rates than available to the general public. There are in excess of 100 lending institutions, offering a wide range of mortgage facilities. It is therefore of paramount importance that you seek quality Independent Mortgage Advice from a firm specialising in mortgages, who will look at your individual circumstances and requirements as a whole, and tailor your needs to a particular mortgage. The Mortgage Shop fits this requirement.. This is likely to be the largest single investment you will ever make and great care and advice should be considered even if your are a 2nd of 3rd time buyer, mistakes are costly.

Generally speaking, a mortgage is originally taken out for a period of say 25 years, however less is available subject only to your budget. During this period you may need to move house many times, change the lender for a more preferential rate, change the type, borrow more, payoff more the list goes on. It is therefore important to be aware of any penalties or specific circumstances that may be imposed for any of these changes and the benefit that is being given in exchange for the freedom to more flexibility.

There are several different kinds of mortgage type available in the UK most of these is listed below. Click a link below to transfer sections.

<<top

Mortgage Redundancy & Sickness Insurance

Here we have two types of cover that can be purchased singularly or as a combined plan. First Redundancy Insurance this seems quite straight forward enough it covers you if you are made redundant from your employment however it also often covers self employed people who lose valuable contracts and are unable to continue working on that basis. Sickness Insurance is cover for long term diagnosed illnesses and disabilities that you might suffer from, particularly useful for broken limbs and serious conditions. Both types of these covers are a monthly premium contract that pays out from 30 days, however some lower cost less effective plans are available from 90 days (or longer) these are obviously not as useful in that you have no protection from your mortgage costs during the all important first few weeks and months. Some more comprehensive plans offer back to day 1 cover if your problem reaches the 30 day claims restriction period, this is a great feature to have included in your plan. Basic rule of thumb here is the shorter the deferred period before claim entitlement the better your cover is for your needs. Its often a feature to allow associated costs like life and other insurance costs, utility bills etc be covered by these plans to further protect you from incident. Get a quote for the best insurance at the right price for your needs.

Variable Mortgage

With this facility you pay at whatever the standard variable rate of your lender is at the time. If the lenders standard rate increases, then your monthly interest payments will increase, likewise, if they decrease, so will your payments. There is normally no penalty attached to early redemption of this facility.

Pros Cons
If interest rates fall over the term of the mortgage, then the monthly payments will fall. If interest rates rise over the term of the mortgage, then the monthly payments will increase.

 

Discounted Variable Mortgage

Lenders may from time to time offer a discount off their normal lending rate. The discount can sometimes be quite large and can last for anything up to say 3 to 4 years. At the end of the discount the mortgage returns to the lender’s variable rate. As only the discount is guaranteed, if the standard rate increases, so would your payments.

Pros Cons
You get a discount from the normal rate and if interest rates fall over the term of the mortgage, then the monthly payments will fall.

This is an incentive to secure you as a client.

You get a discount from the normal rate and if interest rates rise over the term of the mortgage, then the monthly payments will increase.

Often redemption penalties apply sometimes beyond the period of the discount period. A collar may sometimes be hidden in the small print of mortgage offers.

<<top

Capped Rate Mortgage

With a Capped Rate, a level is set above which your rate cannot rise. You will pay the standard variable rate of your particular lender, however if your lender’s rate increases, yours will not increase above the level at which you have capped. Conversely, if their standard variable rate decreases, your payments will decrease. This facility can give you the best of both worlds however decent rates are few and far between.

Pros Cons
The security of knowing that if interest rates were to increase substantially, your mortgage payment could not increase above a set level. Sometimes the capped variable rate is not quite as competitive as the standard variable rate. Occasionally a fixed rate mortgage could be lower than a capped rate. There are normally penalties to pay for early redemption often with ties beyond the fixed rate period. Beware collars can often be found hiding in the very small print of these mortgage offers, meaning the rate cannot fall below a certain level despite what happens to the BOE rate.

 

Fixed Rate Mortgage

The mortgage rate is fixed at a certain rate for a certain period payments can neither increase or decrease during this time. At the end of the fixed rate period, you will revert to the lender’s variable rate.

Pros Cons
You know where you stand during the fixed rate period and can budget accordingly as your monthly mortgage payments are fixed. If interest rates go down during the term of the fixed rate period, you may find yourself paying more than if you had had a standard variable mortgage. There are normally penalties to pay for early redemption often with ties beyond the fixed rate period.

<<top

Cashback Mortgage

The cashback mortgage is very popular with 1st time buyers and remortgagers as it allows you to budget for the expenses of moving in or moving loans to another lender much more comfortably. Cashbacks of up to 8% are sometimes available, however not in times of market turmoil, and as long as you are aware of the down sides to these products all is fine.

Pros Cons
The cashback can be used for furniture, carpets or in some cases as the actual deposit for your new home. For lender moves it can also pay all associated valuation and legal fees. The mortgage rates are normally more expensive with a cashback and with big penalties if you move lenders.

 

Base rate tracker Mortgage

A fairly new addition the mortgage rate stable the tracker has been designed due to the less than honest actions by certain lenders to keep control of their clients money (in their favour). In stating this I mean that when the Bank Of England base rate goes down the lenders have in the past decided to keep some of the benefit for themselves, on reflection when rates have gone up they have decided to add to clients worries by increasing by more than the BOE increase. Trackers are a more honest little devil they promise to track the bank base rate and should it rise they will only increase by the same amount, the same with rate decreases you will get the full benefit of the lesser market. Beware the very, very small print on mortgage offers though as some of these deals have a collar to which they will not decrease below even if the Bank Of England rate decreases lower.

Pros Cons
A more honest variable rated mortgage product (at last), often no redemption penalties apply. The rates are normally not the most competitive compared with say discounted rates, often with redemption penalties. Collars can apply.

<<top

Foreign Currency Mortgage

These are VERY, VERY uncertain ways of repaying a mortgage on a UK property based upon the uncertain currency market fluctuations. Loans in a different currency to your earned income are not recommended.

<<top <<Repayment Vehicles <<Mortgages

Repayment Vehicles

There are a number of ways that the capital amount or debt of a mortgage can be paid off at the end of the term of the mortgage, I give below some examples, note that the National Lottery is not included its an obvious one I thought - mind you its 7 times more likely for you to get struck by lightening apparently! Click a link below to transfer sections.

Interest-Only

Many of the above mortgage facilities can be run on an 'interest-only' basis (with the noteworthy exception of a repayment mortgage). If this is the case, then the loan amount does not reduce throughout the term of the mortgage, with the borrower paying monthly interest payments to the lender. You will obviously have to pay the outstanding capital sum at the end of the term of the loan or when you redeem it. This could be done with the funds from the sale of the property, from other investments or if you were to inherit some money. This type of repayment is rarely suitable for clients needs and is subject to closer scrutiny by the lenders especially if there is no clear indication of how the mortgage debt will be repaid by borrowers, which is of course essential.

Pros Cons
This is the cheapest way in which to borrow money for purchasing/remortgaging a property. Of particular interest to offshore purchasers. Not suitable for 90% of clients The loan will remain at the initial level with the full amount repayable to the lender on redemption of the facility.

<<top

Endowment

Having been criticized by the media and in some cases rightly so. This method provides a structure where you will be covered in the event of your death within the mortgage term, with the opportunity to build up a fund of money to help in repaying the outstanding loan at the end of the term or earlier with exceptional returns. With correct Independent Financial Advice on which type of endowment is most suitable, which way to set it up and indeed which market to invest in this method still has good merit for young healthy, wealthy individuals willing to accept that they are for long term growth and not short-medium term gain. There is a risk of non repayment of full mortgage debt if very adverse returns are received.

Pros Cons
Enables life cover and savings to be provided at a relatively low cost. Flexible investment choice. The fund value is dependant on investment performance and charges - serious individual advice must be taken. With all plans except full with profits no guarantee of full mortgage repayment.

 

Pension

The mortgage is linked to a pension contract which could provide additional life cover, a lump sum to repay the mortgage and an income for life from the maturity date of the policy. This is not suitable for all needs and a full analysis should be undertaken to ensure that this is the right method for you. These loans are popular with self employed people who have not yet commenced retirement planning. Term Life Assurance is not always possible or cost effective to be arranged with the same provider as your pension in such a case another provider would be used to cover the risk of earlier death. Does tie all eggs into one basket!

Pros Cons
Tax relief is available on the pension premium at one’s highest rate of tax, with the fund itself invested in a tax efficient environment. Quite expensive with returns dependent on long term investment performance and charges - serious individual advice must be considered with this method. Failure to repay full mortgage debt possible if poor returns received.

<<top

Individual Savings Account (ISA)

This is not always a packaged mortgage repayment product with investment and life cover wrapped into one plan. Non packaged are designed primarily for investors who want flexibility and pure investment opportunity. Payments would be made into an ISA to provide a fund to repay your mortgage debt. A separate term life assurance would then be needed to cover your life. There is however risk of non repayment of your mortgage at the end of the term due to poor investment returns being achieved.

Pros Cons
Tax efficient growth within the funds. A very competitive product resulting in low charges and wide investment choice. The Packaged method offers quite good value against taking separate ISA & Life plan. The Non Packaged type are not a designed mortgage product and suitable only for the more sophisticated investor - serious individual advice must be taken. Could risk non repayment of full mortgage debt.

 

Capital & Interest or Repayment

This type of repayment is the original and guaranteed method. It offers a basis similar to a car loan, but obviously with larger sum's of money and longer terms involved. It is suitable for anyone who has no faith in the long term performance of the stock market and offers a straight forward and easy to understand way to clear your mortgage. This form of mortgage needs further protection in the form of Term Life assurance to cover any dependants if any.

Pros Cons
The loan is guaranteed to be repaid at the end of the term. It offers no additional investment performance and has no built in life cover.

<<top <<Repayment Vehicles <<Mortgages

Insurances

Buildings Insurance

It is a requirement of the lender that Buildings Insurance is in place on any property over which they have a charge. Many lenders offer their own buildings insurance, however it may be more competitive to seek comparative quotes elsewhere. With a leasehold property it is normally the Freeholders responsibility to arrange the buildings insurance and to charge each leaseholder a proportion of that fee. If the property is freehold, then the owner is responsible. The building should be insured from exchange of contracts and the purpose of the insurance cover is to pay for the property to be rebuilt in the event of damage/destruction. The premium is based on the reinstatement value of the property. You can get the best quote at the right price here.

Contents Insurance

Covers the contents of the home, i.e. furniture, valuables etc., against loss, damage, theft. There are different levels of cover, some of which will include property outside the home. Here you can get the best insurance at the right price.

<<top

Term Life Assurance

Lenders advise that Term Life Assurance is taken out to cover the loan/mortgage. This is similar to buying car insurance if you don't claim the policy has no value, in this case a claim would be your sudden earlier death, not recommended but possible. These policies are relatively inexpensive and can have additional covers such as critical illness & waiver of premium included. These basically cover should you contract one of a list of critical illnesses in the case of critical illness, such occasion could be cancer, of which the survival rate is increasing daily this would mean your plan would pay out prior to your death in this case. Waiver of premium is a tiny tag on plan that covers your life insurance premiums should you be off work due to sickness or illness for a period of time, normally 6 months. Term Life Assurance policies have no investment content and therefore no surrender value. A lower cost version of life cover is also available for borrowers with a capital and interest or repayment mortgage, these plans offer a level of life cover that attempts to reduce inline with your mortgage debt, namely mortgage protection. These plans are a fair amount less expensive than Term Life Assurance but obviously don't offer the same level of cover. To get a life insurance plan illustration at the lowest price from the whole market see our service at www.UKinsurances.com.

If you have any questions with regard to the above or would like to discuss your requirements, do not hesitate to contact us. For details of how to do this see our contact page or call FREEPHONE 0800 092 0800