Home Improvement Advice for Mortgage

Mortgage Shopping Do it Yourself Tips for Mortgage

Savvy consumers always shop around! Shopping around for a home loan or mortgage will help you get the best financial deal. A mortgage - whether it's for a new home purchase, re-mortgage or a cash back mortgage - is a product, just like a car, so the price and terms are negotiable. You'll want to compare all the costs involved in obtaining a mortgage. Shopping, comparing and negotiating may save you thousands of pounds. So, where do you begin? First and foremost, you need to know what types of mortgages are available to you. Below is a brief description of each:

Mortgages generally fall into two main categories.

# Capital Repayment mortgage:

Here, the borrower pays a monthly amount to the lender, which consists of some interest and some capital that they have borrowed. Gradually, the capital amount outstanding reduces down to nil over the term of the mortgage. This is the traditional method for repaying a mortgage and the principle used here normally applies to all other forms of loans.

# Interest only mortgage:

Here, the borrower only repays the interest to the lender for the term of the mortgage. However, at the end of the term, the lender will require the borrower to repay the lump sum in one go.

Obviously this means that the borrower has to somehow save the money needed to repay the lender at some point in the future.

The most popular way of doing this is by setting up an endowment policy with a life assurance company that acts as a savings plan for the period of the mortgage, with the intended maturity value matching that of the capital amount the borrower will have to pay back at the end of the mortgage.

Life cover is also included in this type of policy to the value of the amount borrowed.

Clients can also use certain types of pension plans where a lump sum is created at their retirement date of which some maybe used to clear the mortgage.

Finally, a Personal Equity Plan or Individual Savings Account, which can, in essence be used as a regular savings plans, can also be used to create the lump sum needed.

Spin offs of both the repayment and interest only mortgages will offer features such as fixed, variable, discount or capped interest rate repayments. Here are the descriptions of each:

Fixed Rates

With fixed rate mortgages, lenders will offer a fixed rate of interest on loan repayments for a given period. There are obvious advantages and disadvantages to this kind of arrangement. Fixed rates guarantee a set level of monthly payment and protect against rises in the base rate of interest during the fixture period. However, if the base rate of interest should fall during the fixture period, the rate payable still remains the fixed rate and payments do not reduce. At the end of the fixed interest rate period, the interest rate payable is normally the lenders standard variable rate. Some lenders will charge a penalty if the mortgage is redeemed within the fixture period.

Variable Rate

Variable rate mortgages offer interest rates that vary in line with the base rate of interest. Borrowers remain exposed to the ups and downs in the economy as reflected in interest rates. Most mortgages granted on a variable rate of interest do not impose redemption charges.

Discounted Rate

Discounts are available on the rate of interest charges normally for a fixed period of time. After which the rate of interest will revert to the variable rate. These mortgages are designed to provide an initial savings and often tie the borrower in to the lenders standard variable rate for a set period after the discount period. Penalties may be charges for redemption within the discount period.

Caps, Floors & Collars

A capped rate mortgage protects the borrower from movements in interest rates by imposing a limit on the amount by which interest payments are permitted to rise. Quite literally, a cap is placed on any rises in interest rates and payments will be guaranteed not to rise above an agreed upper limit. It is also possible to obtain a mortgage with lower limits called floors or collars, below which interest rates payable will not fall. Combinations of caps, floors and discounted rate mortgages are also available. In some cases, there is a charge for early redemption.

Cash Back

Some mortgage lenders will offer an amount of cash to borrowers for taking out mortgages with them. Buying a home can be an expensive undertaking and the extra cash provided often goes towards supporting some of those costs. The borrower is often required to remain with the lender for a fixed period of time and there is often redemption penalties attached to this kind of mortgage.