the mortgage practice

There are several different types of mortgage scheme available, do you know your fixed rate from your flexible?? Don't worry if not, just read on!

* The interest rate goes up and down during the lifetime of your mortgage, broadly in line with interest rates in the economy as a whole. This means that when the interest rate goes up, the amount you have to pay also goes up. When the interest rate falls, your payments come down.
* When the interest rates change, some lenders adjust the amount they charge borrowers immediately whilst others may wait until the end of their financial year before making the change to your monthly payment.

* With a discount mortgage the lender offers you a set percentage reduction on its standard variable rate (SVR) over a given period. For example, your lender may offer you a discount of 1.5% off its SVR of 6.50% for 2 years.
For the first 2 years of your mortgage, interest on your mortgage would be charged at only 5.0% assuming that the lender's own standard variable rate remains the same throughout that period. If the lender raises its SVR to 7.00% then interest will be charged at 5.5% and therefore your monthly payments will rise. Should the lender lower its SVR to 5.5% however, then the interest charged and your monthly repayments would fall.
* An early repayment charge is usually payable if you repay your mortgage within the discount period.
* You may have to pay an arrangement fee to the lender for this type of mortgage.

* A tracker mortgage is a variable rate scheme, which tracks the Bank of England base rate. (BBR) The interest rate is charged at a set percentage above or below the Bank of England base rate.
* The BBR is reviewed every month but does not necessarily always change.
You will benefit from any drop in interest rates but your payments will also increase automatically if the base rate rises. Your monthly payments could therefore fluctuate monthly.
* An early repayment charge is usually payable if you repay your mortgage within the tracker period.
* You may have to pay an arrangement fee to the lender for this type of mortgage.
* These schemes often have 'collars' in place - ie. a minimum rate payable.

* A fixed rate loan gives you a guaranteed rate of interest for an agreed period of time providing you with the ability to budget because it guarantees that your payments will not change during this period.
* A choice of fixed rate periods are available from most Lenders commonly from 1-10 years. When the period ends your mortgage usually reverts to the lender's own standard variable rate.
* It usually makes sense to choose a fixed rate when you think that rates are likely to rise. Do be aware that most fixed rates have Early Repayment Charges if you want to switch or repay the mortgage before the scheme ends.
It’s important to check whether you can transfer the deal to a new property if you move to keep the original deal and avoid early repayment charges.
* More and more lenders are offering fixed rates with an option to make overpayments subject to a certain limit without incurring early repayment charges. As independent brokers we can advise you of those companies that allow you to make overpayments.
* You may have to pay an arrangement fee to the lender for this type of mortgage.

* A compromise between a fixed rate and a variable rate mortgage. Your mortgage rate still goes up and down, but you have the comfort of knowing that when the mortgage rate goes up it will not exceed a certain limit.
* Provides protection against rate increases as the maximum rate you will pay is determined at the outset and you may also benefit from any rate reductions.
* May not receive the cheapest rate on the market. Better deals can be found on fixed rate or discounted mortgages because in theory a capped rate offers the best of both worlds and this is a privilege you often have to pay for.
* An early repayment charge is usually payable if you repay your mortgage within the capped period.
* You may have to pay an arrangement fee to the lender for this type of mortgage.

* Allows you to pay in extra amounts to reduce your outstanding loan or build up a reserve of money you can draw on in the future. Some mortgages allow you to vary or even suspend your monthly payment although interest may continue to be charged.
* Interest is calculated daily (or monthly in some cases) so the benefits of overpayments are immediate. This means you could end up saving a significant amount on your mortgage. You may even be able to pay your mortgage off early.
* The flexibility of being able to reduce or stop payments for a while can also be useful, especially if your income fluctuates – perhaps being self employed and having irregular income, or when you have just had a baby or plan to renovate. However beware that they can cause problems because they give you a great deal of responsibility for your own finances. If you make underpayments and take payment holidays for example, the overall amount you owe will increase. You may increase your monthly repayments or extend the term of your mortgage to compensate.
* Many non-flexible mortgages now have some flexible features such as overpayments without early repayment charges, and daily calculated interest.

This is the most common method of paying off a mortgage. Part of your monthly payment covers the interest on the loan whilst the remainder covers a small part of the capital. Over the years the overall debt decreases and therefore the interest charged on it falls as well, so more of your payments go towards paying off the debt as time passes. If you make all of your payments you are guaranteed to pay off your mortgage in full at the end of the term – which isn’t the case with interest only mortgages.

With an interest only mortgage, your monthly repayment covers only the interest part of the mortgage, not the outstanding debt. At the end of the mortgage term you still owe what you originally borrowed. You need to make a separate payment each month into a savings plan to pay off the debt. There are 3 main options: an endowment policy, an individual savings account (ISA) or a pension plan.

Your home may be repossessed if you do not keep up repayments on your mortgage.