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Mortgages Explained
Mortgage Payment Options
Interest Only
The monthly mortgage payments cover the interest on the original amount borrowed and make no reduction to the capital. At the end of the term, the mortgage lender will require the total borrowing to be repaid. It is the borrower's responsibility to ensure the loan can be repaid at the end of the term; otherwise you could lose your home.
Your monthly payments will be lower than if you selected a repayment basis, as you are only paying the interest and not the capital.
At the end of the term you are required to pay off the entire capital amount borrowed. Alternative arrangements are therefore required to ensure funds are available to repay the capital at the end of the term. For example, pensions, ISAs, endowments. Your Blue Pebble Money adviser can assist you in your choice of investment vehicle. Contact us for further details.
Repayment
Also known as a Capital & Interest mortgage. With this type of mortgage, your monthly payments will pay off both the interest on the capital and a percentage of the capital itself. This means that at the end of the term, you will own the property outright (provided all the payments have been made).
The loan is guaranteed to be repaid at the end of the mortgage term, provided you make each payment when it is due. You can choose the length of mortgage term, thereby agreeing mortgage payments at a level which is affordable for you.
The monthly payments tend to be higher than payments based on an Interest Only mortgage. This is because you are also repaying the capital, in addition to the interest.
Combination
As the name suggests, the type of mortgage offers a combination of Interest Only and Repayment. The products tend to follow the transfer of a product to a new product with additional lending. For example, a repayment mortgage for £160,000 is transferred and an additional £200,000 borrowed on an interest only basis. This allows you to retain the existing rate and payment basis on the original loan, whilst allowing you to perhaps move to a larger property which requires additional lending. Also referred to as a Split Loan.
These types of mortgages allow you to continue to repay a portion of the capital, whilst increasing your purchasing power.
The Interest Only portion of the loan is not being reduced, as you are simply paying the interest. This amount will need to be repaid in full at the end of the term.
Flexible
This type of mortgage allows flexibility over the payments to the lender. The lender will allow monthly or lump sum overpayments, or both. You may be able to take a payment holiday or borrow additional money, without further approval. Additional features will vary between lenders but in general this product allows great flexibility. This would suit you if you receive annual bonuses, or can afford to pay back more than the required mortgage payment on a regular basis.
Allows monthly, or lump sum, overpayments and payment holidays. Thereby giving you more control over your borrowing.
The intention of this product is to reduce the overall level of borrowing; however, it may be possible to borrow additional money, due to the flexibility of this product, thereby increasing the level of borrowing. Good financial management is required to monitor this type of product.
Cashback
Once the loan has been drawn down, the lender will then pay a cash sum to the borrower. This amount is usually a percentage of the overall borrowing i.e. 3%.
The borrower receives a cash sum with which to make home improvements, for example.
Early repayment penalties may apply if the scheme is ceased within a specified period of time.
Offset
This type of mortgage allows you to reduce the interest chargeable on your loan. Your main current bank account and/or savings account are linked to the mortgage account. Each month, the balance of your personal accounts is deducted from the mortgage capital, before the interest is calculated. This means that your mortgage payments are directly affected by your financial situation. As your balances increase your mortgage payments decrease, and vice versa.
You can reduce the level of interest payable by maintaining healthy savings and current account balances.
You will pay more interest when your account balances decrease. This may not be a good choice for you if you are on a tight budget.
Ethical Mortgages
What are Ethical Mortgages?
An Ethical Mortgage is the term utilised to describe mortgages offered by lenders who have made an ethical or ecological commitment and whose intention is to act responsibly in regards to the global community.
Which Lenders offer Ethical Mortgages?
Co-operative Bank has committed to help combat global warming via annual donations to Climate Care.
Norwich and Peterborough Building Society are supporting the reduction of carbon dioxide by planting new trees for each new home built that meets specific energy efficiency criteria. The Society work closely with Future Forests Ltd, who manages and maintains new and existing forests.
Ecology Building Society is promoting sustainable communities and housing. The society will support mortgage applications against properties that are energy efficient or for the restoration of derelict properties, for example.
At Blue Pebble Mortgages, we can liaise with Ethical Mortgage Lenders on your behalf. Please contact us if you want to know more about Ethical Mortgages.