MORTGAGE SERVICES

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  Repayment Methods for your Mortgage

  Once their mortgage application has been accepted in principal, the borrower may have the option of deciding how he or she repays their loan: on a ‘capital and interest’ basis, or on an ‘interest only’ basis.

  Capital and Interest Mortgages

  An arrangement where part of the monthly repayment is used to pay the interest and the remainder is used to reduce the original amount of the loan. In the early years of the mortgage, most of the monthly repayment goes towards paying the interest; in later years, the interest charges diminish and more of the repayment is available to reduce the loan amount.

  Interest-only Mortgages

  Interest only mortgages are a type of mortgage where only the interest is repaid. The full capital amount remains outstanding during the mortgage term and is repaid in one lump sum at the end of the term.

  Lenders require evidence that a customer will have in place a clear credible repayment strategy and that the repayment strategy has the potential to repay the capital borrowed.

  Repayment strategies may include deposits or investment product(s), pension(s), periodic repayment of capital from irregular sources of income (i.e. bonuses), the sale of another property or other land or other acceptable methods which meet lending criteria.

  This means that the mortgage payments each month will be lower than those of a repayment mortgage for a similar loan and term. Where the repayment of capital is an investment the investment runs alongside the mortgage but is separate from it; the cost should be taken into account when calculating the overall costs of the mortgage arrangement.

  Every month, you then pay this interest to the lender for the duration of the loan. The lender calculates your monthly repayments depending upon how the rate you have chosen is set. The monthly interest payments may vary dependent on whether the interest rate is fixed or variable. At the end of the loan period, the lender will expect the initial capital they lend you to be repaid in full by whatever means you have arranged. 

  Having decided on the loan repayment method, the borrower then needs to consider what kind of mortgage they want. The main options, some of which may or may not be available depending on the mortgage market and general economic conditions prevailing at the time, are described below.

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  Standard Variable Rate Mortgages

  The monthly mortgage repayments are based on the prevailing rates of interest the lender charges - not the Bank of England (BoE) base rate. In other words, it is entirely the lender’s decision on the rate of interest they charge the borrower.

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• Fixed Rate Mortgages

  The interest on the loan will neither rise nor fall for a pre-determined period of time. Although the monthly repayments will stay fixed, if interest rates fall, the borrower could potentially end up paying more than he or she would on another type of mortgage.

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• Tracker Mortgages

  The interest rate applied to the mortgage repayment is linked directly to the Bank of England’s base rate and will rise and fall in line with that rate.

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• First Time Buyer

  The prospect of buying your first home could be both daunting and confusing. Our aim is to guide you through the transaction from start to finish so that you understand exactly what the purchase entails and how much it will cost. We can recommend the services of local solicitors to assist in this process. This maybe the largest financial transaction you are ever likely to make so it must be done with clarity.

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