It’s a confusing world. In the past year or so we’ve swung from ‘ads for 100% mortgages, your old home taken in deposit for your new one, carpets and curtains included to headlines like “The end of the 100% mortgage” and “Mortgage meltdown”. Mortgages too are confusing and what’s right for one person’s circumstances may be totally wrong for someone else.
Basically a 100% mortgage is, as it says, a loan which will provide the full 100% of the money needed to purchase a property. There would be fees to be paid in conjunction with the purchase but no actual deposit. As things have tightened on the mortgage front, more and more lenders are now asking for a deposit of 20% or more, which is an 80% mortgage.
When it comes to re-mortgages, what this means is that a mortgage is arranged which replaces a current mortgage. People often re-mortgage to reduce monthly repayments by achieving a loan with a lower rate of interest. The other main reason for re-mortgaging is when there is an increase in the value of a property and a new mortgage is arranged to free up some of the value, may be to use for property improvement or whatever.
First time buyers in particular need to understand the difference between the various types of mortgages. Fixed, variable, tracker, flexible and interest only – the choice is unbelievable.
For example, a fixed rate mortgage gives you a constant repayment amount for the full term of the loan. There is the comforting thought that you know exactly what your mortgage outgoings will be. There is also the rather disturbing thought that if the lenders standard variable rate (SVR) should reduce, you may be paying more than the going rate.
Tracker mortgages, basically, track the movements of the Bank of England base rate and there is a version which follows the base rate exactly. If the Bank of England rates rise by, say, one percent, then so does your mortgage payment. Most tracker rates are between half and one percent higher than base rate. It’s all a bit of a gamble and not for everyone. If Bank of England base rate fall, you’ll get the benefit, but if it goes the other way, you won’t be so happy. It’s a case of reading the small print and thinking long and hard, in the absence of a crystal ball!
Flexible mortgages are relatively new and they give you the possibility of making extra payments when you’re able to – or reduce when things are more difficult. If you are able to get ahead on mortgage payments you could have a repayment break, to cover things like a holiday of a lifetime, a maternity break or maybe a temporary break between work contracts. A reserve amount would normally have to be built up before taking advantage of this, however.
If you contact an independent on-line mortgage broker, they’ll be happy to give advice on how to work out monthly repayments for each type of loan. They’ll give you all the help you need and can search a very large market to find which ones are best for your own circumstances, with as many comparisons as you ask for.
