MORTGAGE FACTS

Repayment (capital and interest)
Your monthly payment is made up of part interest and a varying proportion of the capital so the mortgage loan amount is gradually paid off year by year throughout the term of the mortgage. Provided you make all the agreed payments, the loan will be fully paid off by the end of the mortgage term.

Interest Only
The amount which you pay to the mortgage lender each month consists only of interest. The original amount that you have borrowed remains outstanding for the term of the mortgage and has to be repaid in full at the end. It is your responsibility to ensure that you have enough money to repay the mortgage at the end of the term. Most lenders will allow you to make overpayments without any penalties.

Standard Variable Rate
Most lenders have a standard variable rate. This is the rate before any ‘special offers’ or discounts are applied. It is set by the lender and will fluctuate roughly in line with the Bank of England base rate. It is up to the lender to decide if they wish to change the rate when the bank base rate changes, and if so by how much.

Fixed Rate
Here the rate is guaranteed to stay fixed for a specific period, after which it can be expected to revert to the lender's normal standard variable rate, or you may have the option to transfer to a new fixed rate. It has the advantage of providing stability, but has the disadvantage that if the standard variable rate falls you may be paying a higher rate of interest.

Discount
This is a discount to the lenders standard variable base rate, lasting for a guaranteed period of time. Your monthly payment will fluctuate with any changes in the standard variable rate, and will revert to the standard variable rate at the end of the period.

Capped
This is a form of variable rate where the rate is capped at a specified level over a specified period of time, i.e. it is guaranteed not to exceed the capped rate during the period. The rate may full during the period, and at the end of the period will revert to the lenders standard variable rate at the time.

LIBOR
London InterBank Offered Rate is the rate at which banks notionally buy and sell money to each other. It varies from day to day and is closely linked to the base rate.

The relationship of LIBOR to the base rate can give you an indication of the possible future direction of base rates. If LIBOR is significantly above the base rate it indicates that the money market believes interest rates are about to increase. If it is significantly below, the reverse is true. The key LIBOR rate is three month LIBOR. However, rates are also quoted for one, six and 12 month periods.

Flexible Mortgage
A flexible mortgage allows you to under pay or over pay the agreed monthly mortgage payments. This will either shorten the term of the mortgage or, in the case of under payments, increase the total interest paid throughout the mortgage term. For individual scheme variations please ask for further information from your mortgage adviser.

Product Rate Period
At the end of a fixed, discounted, or capped rate period, the interest rate payable on the mortgage will revert to the lenders standard variable rate, therefore you monthly cost will increase considerably.

Remortgage
A Remortgage is simply the term used for switching an existing mortgage. You will not be moving home but wish to change your mortgage to a better product with another lender and perhaps increasing the loan size for any of the following reasons and more.

• Save money
• Consolidate your debts
• Car finance
• Home Improvements
• Holidays
• School/ College fees
• Purchase a second home / holiday home

Self-Certification
What is Self-Certification? This is where you can verify your own income to raise finance without proof of income.

Self employed homeowners often struggle to show lenders the required amount of income, on paper, in order to qualify for the loan they need. Self-Certification is suited for the following types of applicants:

• Employed low basics but high commission
• Homeowners who have more than one job
• Part-time workers with extra income earned from self employment
• Those workers who receive benefits / child maintenance etc
• Semi retired homeowners
• Income received via investments etc
• You do not have 2/3 years audited accounts

Secured Loans
Many mortgage lenders can penalise their clients with high exit fees. This can make raising money from your home too expensive by means of a remortgage.

A good alternative could be a secured loan! Often, secured loans are arranged with no up front costs (i.e valuation fees/arrangement fees). Secured loans can also be arranged in a matter of days, not weeks!

Like a remortgage, a secured loan can be taken over many years making the payments more affordable especially if you need to consolidate various loans or credit cards. However, you can choose whatever term you prefer. Typically loans run from 5 years to 25 years. And you can borrow the money for any reason. So if you think you need that secured loan sooner rather than later, this could be the best option for you.

Base Rate Tracker
As the name may suggest, these mortgages are linked to the Bank of England base rate. This base rate is reviewed once a month by the Bank of England, after taking into consideration the cost of borrowing money. A base rate tracker mortgage will allow your monthly mortgage payments to rise and fall in line with these base rate alterations. Lenders will vary on the percentage above or below the bank of england base rate they will offer, but a typical example of a base rate tracker would be for instance 1.5% above Bank of England base rate for 2 years.

Cashback
A Cashback is a relatively common incentive offered by many lenders. A lump sum is paid to you immediately after completion of your mortgage, either as a fixed amount or a percentage of the loan size. For example a 5% cashback on a mortgage of £100,000 would give you £5,000! It is usually a condition of the mortgage that some or all of the cashback must be repaid if the loan is redeemed within a specified period.

Higher Lending Charge
This is a charge sometimes made by the lenders. It is effectively an insurance policy premium that pays for an insurance policy that the lenders take out to protect them should your property be repossessed, but this is at your cost NOT the lenders and does NOT benefit you. It is usually added to the mortgage loan and it is important to not automatically rule out a mortgage deal if this charge applies. A mortgage adviser will be able to talk you through the pros & cons!

Useful Links
www.moneymadeclear.fsa.gov.uk
www.overseas-locations.co.uk

Think carefully about securing other debts on your home. Your home may be repossessed if you do not keep up repayments on a mortgage. Sound Mortgage Advice Ltd is an Appointed Representative of the Modus Mortgage Network Ltd, which is authorised and regulated by the Financial Services Authority. Please note, secured loans and buy to lets are not subject to FSA regulation. Sound Mortgage Advice charges an arrangement fee payable on completion. On average this fee is 0.5% of the amount of the loan arranged, however this may vary (up or down) dependant on your personal circumstances. The actual rate available will depend on your circumstances. Ask for a personalised illustration.