Mortgage Types in Northampton | Michael Knight Mortgages | Earls Barton | Wollaston | Irchester | Wellingborough | Northampton

Mortgage Types

Repaying your Mortgage
You will need to select a method of repaying your mortgage advance following the recommendation made by me and there are two main methods.

A Capital and Interest Mortgage - Repayment
With this method you agree to repay the loan on a monthly basis over a specific term. The monthly payment consists of two elements, capital and interest. Your monthly payments will remain the same unless interest rates change but, as each year passes, the capital element of your payment increases while the interest element decreases. Providing that all the monthly payments are paid in full and on time, the loan will be repaid at the end of the term.

An Interest Only Mortgage
With this method you agree to a term and pay only interest on the capital, the balance owed remains constant throughout. You will need a separate investment to run alongside the loan to generate an equal amount to the capital outstanding at the end of the term. There are three main types of investment plans commonly adapted to achieve this:

·Endowment policies
·Individual Savings Accounts
·Personal Pension Plans

None of these guarantee to repay the mortgage and can be affected by variations such as interest rates and stock market fluctuations. It would be your responsibility to maintain regular payments into such plans and make up any shortfalls in the mortgage if necessary.

Types of Mortgage Products

Standard Variable Rate Mortgages
Most lenders have a rate known as standard variable rate. The lenders usually adjust this variable rate as the Bank of England changes its rate but they are not obliged to do so and although you may benefit from any reductions in interest rates, your repayments are unprotected from any sudden increases. This type of loan is sometimes taken out in conjunction with other offers such as cash-backs.

Tracker Mortgages
A tracker mortgage is one that has a fixed differential to the Bank of England rate and is contractually bound to change within a certain time of the Bank of England making a change to its rate.

Fixed Rate Mortgages
The biggest advantage of a fixed rate mortgage is that irrespective of any fluctuations in interest rates, your monthly payment will remain static throughout the period of the fixed rate. Fixed rates are usually offered for a period of one to five years although longer periods are available. A fixed rate mortgage is usually suitable if your mortgage payment takes up a large proportion of your income as it offers protection against any rises in interest rates. It can also benefit you if you need to know what your monthly repayment will be for a period of time to assist your budgeting. However, you would not benefit should interest rates fall during the period of your fixed rate. Fixed rate mortgages usually incur an early repayment charge if you redeem your mortgage during the fixed rate period and sometimes for a period beyond the fixed rate. The repayments can increase at the end of the fixed rate payments periods.

Discounted Rate Mortgages
With a discounted rate mortgage, lenders usually offer you a discount on the standard variable rate that they offer as a standard for a specific term. This is again usually for a period between one to five years. The savings from these discounts can be considerable although you do not have protection against rising interest rates and may find that should interest rates rise, your mortgage payment could exceed your budget. These are best suited if you do not mind this uncertainty and know your budget can absorb increases in interest rates or you feel that during the term of your discount, interest rates may fall. There are a variety of discount schemes and some of them may have early repayment charges associated with them.

Capped Rate Mortgages
A capped rate mortgage is a mortgage with an interest rate ceiling, above which your pay rate will not rise during the specified mortgage 'deal' period. The rate you pay may fluctuate up or down beneath the cap rate, but is guaranteed by the lender not to rise above the capped / ceiling rate for a predefined period of time. The benefit of a capped rate mortgage is that you know the maximum you will pay on your mortgage for a predefined period of time. You also benefit from any interest rate reductions below the capped rate.

Cash Back Mortgages
These are mortgages that provide you with an amount of cash at the outset of your loan. In return, you usually agree to pay the lenders standard variable rate for a specific term. Some lenders will offer an increased lump sum should you agree to pay a premium rate over the standard variable rate. This type of loan is popular with clients who require additional cash at the outset of the mortgage for either work required on the property they are purchasing or to assist with the costs of moving. Some lenders also offer cash backs in conjunction with fixed or discounted rate mortgages.

Flexible Mortgages
A flexible mortgage may enable the borrower to pay off all or part of the mortgage without paying an early repayment charge. The rate may differ from the lenders standard variable rate. Other advantages are that you may be able to take payment holidays or overpay your mortgage account or raise an additional borrowing facility against the equity of your home. Some of these flexible mortgages may also offer the opportunity to take a fixed or discounted rate on your mortgage borrowing. With this type of mortgage, interest is usually calculated on either a daily, weekly or monthly basis.