Mortgages made easy

The fact that you are reading this online means that you are probably aware of the masses of information online about mortgages. The good news is that you have successfully navigated through the hype and have come to the place where you are guaranteed to find clear, simple mortgage information.  Not only because the Financial Services Authority (FSA) demands that we are clear at all times, but because at L&C Mortgages we take pride in ensuring that our customers feel in control and comfortable every step of the way.

This page is designed to give you simple information about mortgages. It is not designed to replace advice, because your mortgage requirements will be unique to you.  This will armour you with the basic knowledge you require in order to find mortgages less daunting.

Some of the terms provide a click-through to our glossary so that you can find out more. You can also follow links into articles where subjects are discussed further.

1) Which mortgage should I go for?
The first thing to know about is the types of mortgages available in the UK. Which one you go for depends upon your financial habits and lifestyle. A good mortgage adviser always looks at your circumstances and not just the interest rates offered.

Tracker Mortgages
What?
Tracker mortgages shadow the Bank of England base rate for a period of time, e.g. 0.02% above base rate for 2 years.
Is it for me?
Tracker mortgages often suit those looking for the cheapest mortgage on the market, but who can also cope with paying out more each month should there be an increase caused by changes to the base rate.
Sum up?
Often the cheapest, but you take the risk that your payments could rise.

Discount mortgages
What?
Discount mortgages offer a discount off the mortgage lender’s standard variable rate (SVR) for a period of time, e.g. 1.4% below the mortgage lender’s SVR.
Is it for me?
Like tracker mortgages, discount mortgages often suit those looking for the cheapest mortgage on the market, but who can afford any increases to their monthly payments.
Sum up?
More than likely one of the cheapest mortgages available, but make sure you can afford any payment increases.

Fixed rate mortgages
What?
With fixed rate mortgages, you agree to pay the same interest rate for a certain amount of time. Therefore you know exactly what you are paying each month.
Is it for me?
Fixed rate mortgages tend to be a favourite of first time buyers and young families who need to budget – or anyone who requires financial security.
Sum up?
You may pay a slightly higher interest rate, but for some people the extra cost is worth the peace of mind.

Capped mortgages
What?
Capped mortgages guarantee that your monthly payments cannot go above a certain amount, but if interest rates fall significantly then your mortgage payments can drop.
Is it for me?
Capped mortgages often suit those who can cope with the fluctuations of a variable rate, but are also concerned about interest rates soaring. Capped mortgages offer a measure of security and for some borrowers they provide the perfect compromise between a fixed rate mortgage and a variable rate mortgage. However, it’s important to note that you often pay a higher interest rate.
Sum up?
Some security, some risk – a half way house. But you could pay more for it.

Flexible mortgages
What?
Flexible mortgages are mortgages which allow you to do things that a more traditional mortgage would not. They came about due to an increasing need for borrowers to do things such as take payment holidays, make overpayments, due to having an irregular income, for example.
Is it for me?
Flexible mortgages are there to suit your financial habits, so you may find that a particular feature is of great benefit. However, you may pay a higher interest rate for the privilege. You can always go for a traditional mortgage which offers flexible features, without the higher interest rates of flexible mortgages.  For example, some ordinary mortgages now offer the ability to make overpayments.
Sum up?
Go for a flexible mortgage if you need a particular feature and can’t find it with a traditional mortgage.

Cashback mortgages
What?
With cashback mortgages the mortgage lender gives you a cash sum to the value of an agreed percentage in relation to your mortgage. For example, 4% of your £100,000 mortgage gives you a cash sum of £4,000.
Is it for me?
Cashback mortgages probably sound appealing, but they only really suit those in specific need of a cash sum, with no aversion to being tied to their mortgage lender for a set period of time. If the lump sum sounds too good, then it probably is: you may have to pay a higher interest rate and there may be early repayment charges.
Sum up?
Attractive cash sum, but watch out for higher interest rates and early repayment charges.

Offset mortgages
What?
With offset mortgages, your savings are used to pay off your mortgage. For example, your mortgage is £100,000 and you have £25,000 in savings, so you only pay interest on the difference of £75,000. You pay the mortgage lender each month as with a traditional mortgage, but your savings work as an overpayment. Some offset mortgages have a current account attached.
Is it for me?
Only of benefit to borrowers with substantial savings. You can pay off your mortgage more quickly than with a traditional mortgage. Also you are making good use of your savings and offsets are tax efficient if you are a higher rate taxpayer. However, you may pay a higher rate for offset mortgages. This doesn’t mean they are not the cheapest option for some borrowers.  This point illustrates the benefits of consulting a mortgage adviser to look at the whole picture for you.
Sum up?
Modern and attractive, but only effective if you have savings.

You should by now have an idea of which mortgage might suit you. So now you can begin to make another important choice:

2) How am I going to repay the mortgage?
With mortgages you decide the method by which you are going to repay the money to the mortgage lender. You have two choices: interest-only or repayment (or a mix of both)

Repayment mortgages
This is fairly straightforward: you pay back the mortgage each month - paying the interest on the mortgage and part of the mortgage itself. At the outset, you pay mostly interest but eventually you pay off more of the loan.

Interest-only mortgages
This means paying only the interest owed on the mortgage. Alongside the interest repayments, you also set up an investment with the intention of building enough money to repay the outstanding balance on the mortgage.

For first time buyers, the prospect of interest-only mortgages can be appealing.  This is because of the lower mortgage payments at the outset. However, if you are a first time buyer (or anyone considering an interest-only mortgage as a means of affording to repay a mortgage) it’s important to note that your intention should always be to clear your mortgage as soon as possible. Either opt for the repayment method, or have a realistic plan for repayment alongside your interest-only mortgage.  (See also 100% mortgages.)

Finally, there is one other factor to consider when looking at how to repay your mortgage:

Daily or annual interest calculation?
This is the method that the mortgage lender uses to calculate how much interest you owe. Annual calculation costs more for repayment mortgages, since you don’t benefit from the amount of the loan that you have already repaid that year. However, interest calculation is only one part of the broader picture, so it’s best to consult a mortgage broker.

You should be feeling a little more confident about what you know. Jot down a few ideas about what you would like from your mortgage, and if you’re ready then contact us now.

Otherwise, for more information click here to go to: Other mortgage issues to consider

See also: our online mortgage calculators
free mortgage advice: our no broker fee policy

Useful links:
http://www.fsa.gov.uk/   The Financial Services Authority (FSA) 
The independent body that regulates financial services – the ‘financial watchdog’.  Site includes news and consumer information.

http://www.cml.org.uk/cml/home   The Council of Mortgage Lenders (CML)
The trade association for UK mortgage lenders, including consumer information.