With all these options available the good news is that you can find the correct mortgage for you. However this improved choice can seem bewildering and you may miss out on the best option for you through confusion, lack of time or simply having too many choices.In this competitive market it has never been more important to get clear, concise and simple independent advice to help you make the right choice.This guide is designed to help explain some of the options available to you and to let you know how a mortgage broker can make sure that one of the most important choices of your life is the correct one for you.
The Mortgage ProcessWhat is a mortgage?
A mortgage is made up of two parts:The Capital -
This is the amount of money that is borrowed from the lender to purchase the property.The Interest -
This is the interest that the lender charges on the capital until it is repaid at the end of the mortgage term.
Types of MortgageRepayment mortgageEach month your payment to the lender repays some capital and some of the interest. As long as you maintain your payments you can be certain that your mortgage will be repaid at the end of the term.Advantages
As long as the monthly payments are maintained the mortgage will be repaid at the end of the term - no need to worry about investment returns
Ideal if you wish to limit the risk linked to your mortgage
Simple to understand with payments to one providerDisadvantages
No possibility of additional investment returns
If you move house frequently it is difficult to build up equity in the property in the early years, as early payments are mainly interest
Limited possibility of repaying the loan early without increasing monthly payments
Interest only mortgageEach month the payment to the lender repays the interest on the loan. In this way the amount that is owed to the lender remains the same throughout the mortgage term. At the end of the mortgage term the lender will require the original amount of the loan to be repaid. A separate savings vehicle is used to build up enough money to repay the loan.Commonly used savings vehicles are:
Endowments (With profits)
PEPs (Pre April 1999)
ISAs (Post April 1999)
PensionsAdvantages
Offers the potential for additional investment return at the end of the term or the ability to repay the loan early, subject to investment return
The savings vehicle is usually portable when you move house
Choice of a wide range of investments that can be tailored to meet individual needs
Easy to move the mortgage without disrupting the repayment planDisadvantages
The ability to repay the loan is dependent upon the investment performance of the savings vehicle
You are responsible for the repayment of the loan at the end of the term
Two separate payments to track. One to the lender and another to the investment company
'Mix & Match'Many people moving house may already have an endowment plan from their previous loan. Their circumstances may have changed, however, so an additional endowment would not be appropriate for them. In these circumstances, it is usually possible to arrange for a lender to set up part of a loan on an interest only basis, and part on a repayment basis, thus ensuring that the benefits already accrued under the endowment are not lost. Not only that, but the life assurance already provided under the endowment is not lost.This method is becoming increasingly popular for people moving on to their next house.
Endowment Mortgages (With Profit)This type of investment combines a savings vehicle with the life protection needed to repay the loan on death during the term.Bonuses are usually, but not guaranteed to be added to the plan on a yearly basis and once paid these cannot be taken away.In this way the endowment aims to provide steady growth over the mortgage term and provide a lump sum, which should allow you to repay the loan although this cannot be guaranteed and is dependent on investment performance.Advantages
Guarantees to repay the loan in the event of death during the term
Portable and can be moved from mortgage to mortgage
Once bonuses are added they cannot be taken away
Potential for additional returns
Potential to repay the mortgage early
Can combine savings plan with life and critical illness protection if requiredDisadvantages
If surrendered early the return may be less than the premiums paid
No flexibility in premium payments
Term should be for at least 15 years
No guarantee that the mortgage will be repaid. The return is based wholly on the investment performance of the chosen provider
Must have life cover built in whether required or not
A Market Value Reduction (MVR) could apply to your endowment (if with profits) in adverse market conditionsA Market Value Reduction is a reduction applied to unitised with-profits funds where the value of the underlying assets is low. The Market Value Reduction, if any, is applied only when the plan is fully or partially surrendered (for example, on early retirement or transfer to another plan) or units switched into another fund.
ISA MortgageAn ISA (Individual Saving Account) is a very flexible way of saving to repay your mortgage. They do not have a set investment term and contributions may be varied (usually subject to maximum and minimum limits). You can pay on a regular monthly basis as well as making lump sum payments into the plan as long as you remain within the maximum annual limit.They offer a wide range of investment choices and also have several tax advantages.Additional protection such as Life or Critical Illness cover is usually purchased separately.Advantages
Tax efficient savings
No specific term
Potential to repay the loan early
Potential for additional investment return
Flexible premium payments
Portable - can be moved with your mortgageDisadvantages
Separate protection plan(s) required
Return is reliant on investment performance
No guarantee of return
Can only be taken in single name
Pension MortgageThis aims to take advantage of the tax free cash that is available from a personal pension plan. As this involves pension planning as well as mortgage planning it can be a very complicated area to consider.As with all the other options highlighted, there are advantages and disadvantages, however due to the complex nature of Pension Mortgages they should be dealt with on an individual basis and independent advice should be sought.
Hanson Wealth Management are a UK based Independent Financial Adviser. Hanson are the only Mortgage Brokers endorsed by the Police Federation of England and Wales to provide Police Mortgage Quotes
The Mortgage ProcessWhat is a mortgage?
A mortgage is made up of two parts:The Capital -
This is the amount of money that is borrowed from the lender to purchase the property.The Interest -
This is the interest that the lender charges on the capital until it is repaid at the end of the mortgage term.
Types of MortgageRepayment mortgageEach month your payment to the lender repays some capital and some of the interest. As long as you maintain your payments you can be certain that your mortgage will be repaid at the end of the term.Advantages
As long as the monthly payments are maintained the mortgage will be repaid at the end of the term - no need to worry about investment returns
Ideal if you wish to limit the risk linked to your mortgage
Simple to understand with payments to one providerDisadvantages
No possibility of additional investment returns
If you move house frequently it is difficult to build up equity in the property in the early years, as early payments are mainly interest
Limited possibility of repaying the loan early without increasing monthly payments
Interest only mortgageEach month the payment to the lender repays the interest on the loan. In this way the amount that is owed to the lender remains the same throughout the mortgage term. At the end of the mortgage term the lender will require the original amount of the loan to be repaid. A separate savings vehicle is used to build up enough money to repay the loan.Commonly used savings vehicles are:
Endowments (With profits)
PEPs (Pre April 1999)
ISAs (Post April 1999)
PensionsAdvantages
Offers the potential for additional investment return at the end of the term or the ability to repay the loan early, subject to investment return
The savings vehicle is usually portable when you move house
Choice of a wide range of investments that can be tailored to meet individual needs
Easy to move the mortgage without disrupting the repayment planDisadvantages
The ability to repay the loan is dependent upon the investment performance of the savings vehicle
You are responsible for the repayment of the loan at the end of the term
Two separate payments to track. One to the lender and another to the investment company
'Mix & Match'Many people moving house may already have an endowment plan from their previous loan. Their circumstances may have changed, however, so an additional endowment would not be appropriate for them. In these circumstances, it is usually possible to arrange for a lender to set up part of a loan on an interest only basis, and part on a repayment basis, thus ensuring that the benefits already accrued under the endowment are not lost. Not only that, but the life assurance already provided under the endowment is not lost.This method is becoming increasingly popular for people moving on to their next house.
Endowment Mortgages (With Profit)This type of investment combines a savings vehicle with the life protection needed to repay the loan on death during the term.Bonuses are usually, but not guaranteed to be added to the plan on a yearly basis and once paid these cannot be taken away.In this way the endowment aims to provide steady growth over the mortgage term and provide a lump sum, which should allow you to repay the loan although this cannot be guaranteed and is dependent on investment performance.Advantages
Guarantees to repay the loan in the event of death during the term
Portable and can be moved from mortgage to mortgage
Once bonuses are added they cannot be taken away
Potential for additional returns
Potential to repay the mortgage early
Can combine savings plan with life and critical illness protection if requiredDisadvantages
If surrendered early the return may be less than the premiums paid
No flexibility in premium payments
Term should be for at least 15 years
No guarantee that the mortgage will be repaid. The return is based wholly on the investment performance of the chosen provider
Must have life cover built in whether required or not
A Market Value Reduction (MVR) could apply to your endowment (if with profits) in adverse market conditionsA Market Value Reduction is a reduction applied to unitised with-profits funds where the value of the underlying assets is low. The Market Value Reduction, if any, is applied only when the plan is fully or partially surrendered (for example, on early retirement or transfer to another plan) or units switched into another fund.
ISA MortgageAn ISA (Individual Saving Account) is a very flexible way of saving to repay your mortgage. They do not have a set investment term and contributions may be varied (usually subject to maximum and minimum limits). You can pay on a regular monthly basis as well as making lump sum payments into the plan as long as you remain within the maximum annual limit.They offer a wide range of investment choices and also have several tax advantages.Additional protection such as Life or Critical Illness cover is usually purchased separately.Advantages
Tax efficient savings
No specific term
Potential to repay the loan early
Potential for additional investment return
Flexible premium payments
Portable - can be moved with your mortgageDisadvantages
Separate protection plan(s) required
Return is reliant on investment performance
No guarantee of return
Can only be taken in single name
Pension MortgageThis aims to take advantage of the tax free cash that is available from a personal pension plan. As this involves pension planning as well as mortgage planning it can be a very complicated area to consider.As with all the other options highlighted, there are advantages and disadvantages, however due to the complex nature of Pension Mortgages they should be dealt with on an individual basis and independent advice should be sought.
Hanson Wealth Management are a UK based Independent Financial Adviser. Hanson are the only Mortgage Brokers endorsed by the Police Federation of England and Wales to provide Police Mortgage Quotes
