Mortgages Made Simple

The following is a brief guide to mortgages. We have selected the most common methods and given a simple explanation of how they work.

What is the best mortgage available?
The best mortgage is NO mortgage!! Failing that, the best mortgage is the one that suits your individual circumstances.

The Different Types of Mortgage
There are two basic types of mortgage: 

• Capital repayment
• Interest Only

Capital repayment loans require payments to the lender, which consist of a combination of Interest and capital repayment. In the early years the interest element forms the major component of the payments and as a result the borrowing will reduce very slowly during the first third of the mortgage term. The repayment of the amount borrowed then accelerates and the amount outstanding falls rapidly during the last third of the term of the loan. Providing that payments have been amended in line with the interest rate being charged, the loan should be repaid by its expiry date.

Advantages of a capital repayment mortgage

• This is the only method that guarantees repayment of your mortgage.
• You can see your balance reduce over the years.

Disadvantages of a capital repayment mortgage

• Very little capital is paid off in the early years of the mortgage.
• Nearly 50% of the capital will still be owing after 18 years on a 25 year mortgage.
• This is not a problem if you do not move home or re-mortgage. To reduce the cost of their monthly outlay, many borrowers tend to take the new mortgage over 25 years therefore extending the time that they are paying a mortgage for

Interest only loans require payments, which cover the interest but make no reduction to the amount borrowed. The lender will require the borrowing to be repaid in a lump sum at the expiry date of the loan. It is usual for an investment plan to be put in place to provide for the repayment of the loan on the due date. Capital repayment is usually enabled by regular investment over the required number of years into one or more of the following plans: Individual Savings Account, Unit Trusts, Investment Trusts, Endowment Policies and the Tax Free cash from personal pension plans.

Disadvantages of an Interest Only mortgage

• You have no method of repaying the mortgage debt. You may have to sell your property to repay the loan.
• Many lenders will not lend on an Interest Only basis.

Advantages of an Interest Only mortgage

• Your monthly outlay is lower

Endowment - How it works:
An endowment is a savings plan with built in Life Assurance. You pay only interest to the lender. The mortgage debt will remain the same throughout the term.
The mortgage should be repaid when the endowment ends (matures).

Advantages of an Endowment Plan

• Flexibility. If you move house, you take the policy with you to the new property, thereby not increasing the term of the loan.
• If the fund value at the end of the term is greater than the amount you borrowed, the difference is yours, Tax Free!

Disadvantages of an Endowment Plan

• There is a possibility that your fund may not build up enough money over the life of the mortgage..

ISA Mortgage - How it Works :
It offers more flexibility, in many cases, than endowments. Generally, you will need to buy separate Life Assurance.

Advantages of an ISA

• Tax Efficient.
• Access to money at any time, when the fund has reached the target amount you can use it to clear your mortgage, possibly early.
• It has the same flexibility when moving home as an endowment.

Disadvantages of an ISA

• It has similar disadvantages to an Endowment. An ISA allows you access to your money at any time, therefore you can withdraw the funds before the mortgage is cleared. Using your ISA investment entitlement for house - purchase.

It should be noted that PC Mortgages will only discuss these mortgage repayment methods in generic terms and do not offer advice on choice of funds or provider.

Mortgage Deals Explained

Variable Rate
Your monthly payments to the lender are variable, and depend on the interest rate at the time. Therefore, as interest rates change, so do your payments.

Discounted Rate
This is a variable rate, with a discount applied for a period of time, for example, a 1% discount off the standard variable rate for two years.

Cash back
This is a variable rate, but when the money is lent to you, the lender will also pay you a cash bonus, for example, 3% to 5% of the amount borrowed.

Fixed Rate
The lender will fix the interest rate for a set period of time - usually between one and five years. After the fixed period ends, your payments will revert to whatever the variable rate is at the time.

Capped Rate
This is a variable rate with a specified maximum interest rate that your payments cannot exceed, for a set period of time usually one to five years. You know at the outset what your maximum monthly payments will be (the capped rate). However, if the variable interest rate falls below the capped rate, your mortgage payments will go down. At the end of the capped rate period, your payments will revert to whatever the variable rate is at the time

First Time Buyers Welcome

Buying your first home is a very exciting time, also a very expensive time, by letting us at PC Mortgages guide you through the mortgage maze, we will save you time and money. As a first time buyer there are many aspects of getting a mortgage that you should consider, don’t be fooled with the lowest interest rate or that first time buyer offer. We at PC Mortgages look further into the future for you and consider the costs of these offers before recommending them.

Need more than the high street lender will allow. You need to speak to PC Mortgages

No Deposit. No Problem. 125% mortgages available.

Re-Mortgages

This is becoming popular as people become more financially aware and realise that re-mortgaging is not such a daunting task, and in many cases can be completed at little or no cost.

The reasons our customers re-mortgage are varied, but the most common are to change lender to obtain a better rate of interest, therefore reducing monthly payments. Also to raise capital for home improvements, to raise money to consolidate loans, credit cards and overdrafts.

Contact us with details of your current arrangements and we will make comparisons to ensure it is the right decision for you, before taking it further.