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MORTGAGE HELP GUIDE
There are many different mortgage options available, it's just a matter of picking the one that suits you.  We recommend that you seek independent advice from one of our team of Mortgage Advisors and talk to other people who have got mortgages.

Variable Rate Mortgage
The simplest form of loan is one which sets its interest rate according to the lenders standard variable rate, or SVR.  With a loan like this, your interest payments will rise or fall every time there is a change in the Bank of Englands base rate.

Advantages:       There are usually no early redemption penalties on these loans.

Disadvantages:  The unpredictability of interest rates makes it hard to plan your finances and the costs of your mortgage may shoot up if interest rates rise.

Discount Rate Mortgage
These loans help reduce your expenses in the early years by setting your interest rate at a few points below the lender’s Standard Variable Rate (SVR).  Your interest payments may still move up and down but the differential between your rate and SVR remains constant.

Advantages:       The discount helps to free money for other expenses, just when you need it most.

Disadvantages:  When the discount period comes to an end, the loan's shift back to SVR which may mean a big leap in what you pay.  Some of these loans also carry early redemption penalties which will reduce their benefit if you move early on.

Fixed Rate Mortgage
Loans like this fix your interest payments at a specified level for the first few years.  When the fixed-rate period has expired, your payments change to match the Lender's standard variable rate (SVR).

Advantages:        The fact that you know exactly what your mortgage will cost you in the early years helps when budgeting.

Disadvantages:   These loans sometimes carry early redemption penalties which continue long after the fix is over.  This can leave you trapped with an uncompetitive SVR loan.

Capped Rate Mortgage
These loans have a fixed ceiling on the interest rate for a period of time, above which your rate will not be allowed to go.  If base rate falls, your rate can still fall with it.

Advantages:       You are protected from interest rises but you will benefit from the falls.

Disadvantages:  Application fees may add to the cost of your loan and it can be more expensive than fixed rates or discounts.

Repayment Mortgage
Your monthly repayments cover both house value and interest on the loan.  No other repayment vehicle is needed but your Lender may insist on life insurance in case you die before the mortgage is cleared.

Advantages:       Simple, straightforward and easy to understand.  Avoids the risk of investing in the stock market.

Disadvantages:  Unlike a pension, ISA or endowment mortgage, repayment loans do not give you the opportunity to benefit from a rising stock market.

Interest Only Mortgage
With an interest only mortgage, your monthly payments to the lender cover only the interest on the loan (i.e.  they don’t repay any of the capital you borrowed to buy the house).  The full amount of the loan has to be repaid to the lender at the end of the term.  To do this, you invest additional funds in investments which are designed to generate enough (preferably more) capital to repay the loan at the end of the term.

Advantages:       You can choose from a variety of investment vehicles, of which some can have tax advantages.  Should you move or re-mortgage, your investments can generally be reallocated to the new mortgage.

Disadvantages:  Unlike a repayment mortgage, the amount of debt does not reduce over time and there is no guarantee that your chosen investments will grow sufficiently to repay your loan.

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