mortgages terms explained

100% Mortgages

A 100% mortgage offers you a borrowing of 100% of the value of the property, i.e. no deposit is required. Rates may be fixed, variable, discounted or capped (see these product guides for more information).

Opting for a 100% mortgage means that you could risk facing a negative equity situation if house prices fall. You may also be charged an above-average interest rate and a mortgage indemnity premium.

The amount you borrow, the lending charges, and the mortgages rate are just some of the things you will need to take into account when taking on a 100% mortgage.

Base Rate Tracker Mortgages

A base rate tracker mortgage will be based on the Bank of England base rate and a possible loading for a set period or for the term of the loan. The rate payable will alter in line with any change to the Bank of England base rate. This means that you cannot predict the monthly cost of the borrowing, which could cause financial concerns within the mortgage period. In times of falling interest rates variable Rate Mortgages are beneficial, as your mortgage repayments will reduce. However, if interest rates rise, then so will repayments.

Buy-to-Let Mortgages

Buy-to-let mortgages are provided for property purchases or remortgages for investment in the private rental sector. How much you can afford to borrow can be based on how much you earn or the amount of rent expected from the property. Some lenders may also take your existing mortgage or other loans into consideration. Buy-to-let mortgages can be fixed, capped, discounted or variable. Some may be base rate trackers, or have cashbacks and flexible features. With a variable rate buy to let mortgage the amount you repay increases or decreases in line with interest rate changes. This means that you cannot predict the monthly cost of the borrowing. In times of falling interest rates variable rate mortgages are beneficial, as your mortgage repayments will reduce. however, if interest rates rise then so will repayments.

Capped Rate Mortgages

A capped rate mortgage has a maximum interest rate for a given term. The interest rate you pay cannot go higher than the agreed capped rate; thus you know the maximum amount your monthly repayments could rise to. However, if the basic interest rate falls below the capped rate, repayments will also reduce. Sometimes these capped rate mortgages also have a ‘collar’. This means the lender has set a minimum level below which the rate you pay will not fall.

Cashback Mortgages

A cashback mortgage provides a cash rebate on completion of the purchase. The sum is either a percentage of the advance or fixed. This cashback could help you to cover some of the expenses of setting up home, but this bonus is often subject to higher repayment rates and may include penalties for repaying the loan early. Cashback may be offered on fixed, variable or capped rate mortgages.

Discounted Rate Mortgages

A discounted variable rate mortgage offers you reduced repayments for a given term. The lender gives a discount from their standard variable rate. For example, the variable rate may be 5% with a discount of 1%, making your initial interest repayment rate 4%. If the variable rate on which your discount rate is based falls, your repayments will fall. however, if the lender's standard variable rate rises, so will your repayments.

First Time Buyer Discounted Rate Mortgages

These are mortgages open to for first time buyers only. A discounted mortgage gives you reduced repayments for a certain amount of time. The lender gives a discount from their standard variable rate. For example, the variable rate may be 5% with a discount of 1%, making your initial interest repayment rate 4%. If the variable rate on which your discount rate is based falls, your repayments will fall. however, if the lender's standard variable rate rises, so will your repayments.

Fixed Rate Mortgages

If you choose a Fixed Rate Mortgage your monthly repayments will not change for the period of the fixed rate, regardless of the interest rate in the marketplace. This may be important to you if you have a limited budget as you are protected from rising interest rates. However, if the variable rate falls below the fixed rate level, your repayments will not fall. At the end of the fixed rate period your mortgage will usually be converted to a variable rate. Fixed rate mortgage deals are available over varying periods. Some are as short as a few months and other over many years.

Flexible Mortgages

The main features of flexible mortgages are:

• Overpayments - The facility to make extra payments when you have extra money.
• Underpayments - You may also be able to reduce monthly repayments or even take repayment holidays. You will normally have to build up a reserve through making overpayments before this arrangement is allowed.
• Loan draw down facility - Some flexible mortgage providers let you borrow extra money at a set predetermined rate.

Flexible mortgages are usually offered on a daily interest basis.

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Home Information Packs

Home information packs finally became a legal requirement on August 1st, so what are home information packs, what do they contain, what do you need to do, how much do they cost, what’s all the fuss been about and what the problems are? What are home information packs? Every home put on the market with four or more bedrooms will need a Home Information Pack, which includes an Energy Performance Certificate.

Current account mortgages

A current account mortgage lets you operate your mortgage borrowing through a current account. In effect, it is like having a large overdraft. If you had a mortgage of £100,000 and £1,000 credit in your account your balance would show as £99,000 in the red. You may be required to pay your salary into these accounts. These mortgages can let you pay off your mortgage early as any cash going into the account, such as salary, reduces your outstanding debt. If you are disciplined you can save on the amount of interest you repay and the length of your mortgage. Many mortgage lenders show you on a regular basis whether you are ‘on track’ or above / below track with your payments.Some current account mortgage providers also allow loans to be attached to these mortgage accounts, with interest charged at the same rate as the mortgage. This means all your debts are held centrally in one account.

Offset Mortgages

With an offset mortgage you keep your balances e.g. mortgage, savings, current account etc in separate accounts but all balances are offset against each other. This means that the credit balances allow that much of the mortgage not to accrue interest. With some of these mortgages you can make underpayments – this means if in one month you have an unexpected expense you can pay less off your mortgage. Payment holidays may also be available where you pay nothing for a month or so. Over-payments can also be made. Most current account and offset mortgages are variable rate mortgages which means the amount you repay increases or decreases in line with any interest rate changes.

Self Certification Mortgages

Self certification mortgages are available if you cannot verify your income. This could be for a number of reasons including:

• The self certification mortgage lender will ask for details of the your income, but they will not need to see proof of total earnings. Other terms will depend upon the lender's requirement and in accordance with the rates prevailing in the market place.It is a criminal offense to lie about your income.
• It comes from a number of sources.
• You may not have been trading for long enough to have the required number of years accounts.
• You may have a low basic salary but achieve bonus or commission payments or a regular second income.

Variable Rate Mortgages

With a variable rate mortgage the amount you repay increases or decreases in line with interest rate changes. This means that you cannot predict the monthly cost of the borrowing. In times of falling interest rates variable rate mortgages are beneficial, as your mortgage repayments will reduce. however, if interest rates rise then so will repayments.