Mortgages Types Explained
One of the Society’s qualified Mortgage Consultants will discuss your needs and circumstances with you in order to provide you with advice and a recommendation as to what is the most appropriate mortgage for your own personal needs and circumstances. Our Mortgage Consultants can provide this service via telephone, or in one of our branches. This may be more suitable for those who are not sure as to how they wish to proceed with their mortgage scheme.
Execution Only basis means the Mortgage Consultant will not provide any advice or make any assessment as to whether the scheme you have chosen is suitable for your needs and circumstances. Instead you will make your own decision as to which scheme you would like to proceed with. This may be suitable for those who are confident in choosing their own scheme.
If you proceed on an Execution Only basis you will be waiving any rights of protection under the Financial Services Compensation Scheme. (This scheme does not apply to Buy to Let mortgages.)
The repayment type:
The Society can offer Capital & Interest repayment, Interest Only or part Interest Only & part Capital & interest repayment mortgage types.
With a Capital & Interest repayment mortgage your monthly payments will cover the interest due, plus a portion of the capital borrowed. This is the lowest risk mortgage type and provides security that at the end of the mortgage term your mortgage will be repaid in full and you will have full ownership of your home, (as long as all payments have been made in full and on time).
Interest Only mortgages provide lower monthly payments, however this mortgage type provides no guarantee of you being able to clear the mortgage at the end of the term and is therefore generally higher risk than a Capital & Interest repayment mortgage. You will still owe the same at the end of the mortgage as you did at the start and will need to have a method of clearing the balance such as a savings lump sum, or endowment policy (your repayment strategy).
Interest Only will also cost more in interest over the life of the mortgage. This is because the balance does not reduce over the term, and therefore you will pay monthly interest on the entire balance for the full term of the mortgage. With a Capital & Interest repayment mortgage the balance will reduce with each monthly payment, therefore the amount of interest paid each month will also reduce.
Whether or not you are able to obtain an Interest Only or part Interest Only mortgage will be dependent on your Loan to Value (how much equity you will have in your home) and your repayment strategy.
The Society can offer a term of between 5 and 40 years. However, if your mortgage runs past your anticipated age of retirement, we will also need to assess your pension income to ensure that the mortgage would remain affordable to you once you have retired.
The longer the term of the mortgage the lower your monthly payments will be, however, the longer it takes you to repay your mortgage, the more interest you will pay back to the Society.
For Buy to Let mortgages the Society can offer a term of between 5 and 30 years.
There will usually be a range of mortgage products available, full details of the Society’s current range can be found here. Further information about the types of product available can be found below.
This type of product will help you budget your expenditure, as your mortgage payments will be fixed and guaranteed for a specified period of time, providing protection against interest rate rises. However, you would miss out in the event of any interest rate reductions.
This type of product tracks the Standard Variable Rate (SVR) charged by the lender for an agreed period of time providing a discount to the rate payable over that period. These types of rate are generally lower than fixed rates, but come with the risk that if the SVR is to rise, then your mortgage payments will increase. However, you would benefit in the event of an SVR reduction.
Standard Variable Rate (SVR)
This is the Lenders base rate, it is a variable rate that is set independently by the Society. While the Society will take note of external factors such as the Bank of England Base Rate (BBR), the SVR does not track any external reference points, and can change independently from these.
Base Rate Tracker
A rate which moves up or down automatically in line with changes in Bank of England Base Rate. Like Discount rates these types of rate are generally lower than fixed rates, but come with the risk that if the BBR is to rise, then your mortgage payments will increase. However, you would benefit in the event of a BBR reduction.
An Offset facility allows the borrower to link their savings to their mortgage balance to reduce the overall cost of their mortgage. Instead of earning interest on your savings, you will reduce the interest paid towards your mortgage. As savings interest rates are generally lower than mortgage interest rates, this can offer a more cost effective solution than earning interest on your savings. Currently the Society is not able to offer this facility.
Retirement Interest Only (RIO)
RIO mortgages are available to those over the age of 55 who are fully retired. These mortgages are offered on an Interest Only basis, with a lifetime term. These types of mortgage may be suitable for those who require the low payments of Interest Only during their retirement, but do not have a repayment strategy to clear the balance. The mortgage will run until the last remaining borrower passes away, or moves into long term care. The mortgage debt will then be repaid from the sale of the property.
If you are remortgaging from another lender the products offered may vary from time to time. Sometimes remortgage schemes may offer additional benefits such a free valuations, cashback, or fee assisted legal work for the change of provider.
Revert to Rate
Some of our products come with a ‘Revert to Rate’. This means that when the deal period expires, you will move onto a follow on discount rate for a set period of time. For example, you may have a 2 year fixed rate, followed by 3 years on the Revert to Rate, after which you will move onto the Society’s Standard Variable Rate.
These rates are available exclusively to existing members of the Society who have come to the end of their existing deal. While some of our products have an Early Repayment Charge attached, once a borrower has moved onto the Revert to Rate or the Standard Variable Rate they are no longer tied in. At this point they will be able to review their mortgage with the Society, and as long as there is a Loyalty Range available, choose a product from this range to move onto without penalty.
How much can I borrow?
As a responsible lender the Society will perform various assessments of your income, affordability, and other circumstances including your current and previous credit history. These assessments are to ensure that you can afford your mortgage, not only now, but if interest rates were to rise in the future as well, and will be completed whether you choose to proceed on an Advised or Execution Only basis.
Most of our mortgages allow overpayments to be made without an Early Repayment Charge (ERC), as long as you do not pay more than a set percentage of the original mortgage balance during the product period. You should always check your European Standardised Information Sheet (ESIS) or Mortgage Offer for details of any ERC which may apply to a lump sum overpayment.
If your lump sum overpayment is £2,000 or above you will have the option to reduce your mortgage term or reduce your monthly mortgage payments. If you overpay by less than this amount, the balance outstanding on your account will reduce and the amount of interest due will be recalculated immediately. However, your monthly payment will not be adjusted until the next product change.
IMPORTANT: IF YOUR LOAN OR PART OF IT IS TAKEN OUT ON AN INTEREST ONLY BASIS, YOUR LOAN PAYMENTS DO NOT INCLUDE THE COST OF ANY SAVINGS PLAN OR OTHER INVESTMENT YOU MAY HAVE ARRANGED TO BUILD UP A LUMP SUM TO REPAY THE AMOUNT BORROWED. IT IS YOUR RESPONSIBILITY TO ENSURE THAT YOU HAVE SUFFICIENT FUNDS TO REPAY THE LOAN AT THE END OF THE TERM. IF NOT YOU FACE THE RISK OF NOT BEING ABLE TO REPAY THE AMOUNT BORROWED. YOU COULD BE FACED WITH INCREASED PAYMENTS AND YOUR HOME COULD BE AT RISK.