Notes on Financial Products

Mortgage
A mortgage is a loan secured against a property. ‘Secured’ means that if you do not keep up the payments, the lender can sell your home to get its money back.

Repayments Options
Interest Only – The monthly payments cover only the interest on the loan. They do not pay off any of the capital. It is imperative that a separate savings or investment vehicle is set up to build up a lump sum to pay off the mortgage at the end of the term. It is the borrower’s responsibility to ensure they have enough money to repay the mortgage.

Repayment Mortgage or Capital and Interest Loan
The repayments are designed to gradually pay off the amount owed as well as paying the interest charged on the loan. Providing all the agreed repayments are met, the loan will be fully paid off at the end of the mortgage term.

Interest Rate Variables

Discounted Interest Rate
The interest rate will be set at a discount to the recommended lender’s standard variable rate and will apply for a pre-determined period. The rate payable may increase or decrease as the lender’s standard variable rate itself increases or decreases.

Tracker Interest Rate
The interest rate will be set at a rate a fixed percentage above the Bank of England Base Rate and so may rise or fall in line with the Base Rate.

Capped Interest Rate
The interest rate will be capped meaning the interest rate you pay cannot go higher than the set capped rate. This ensures you know the maximum amount your monthly repayments could rise to. Any fall in the basic rate of interest below the capped rate will still entitle you to a corresponding fall in your monthly repayments.

Capped and Collared Interest Rate
The interest rate will be linked to the recommended lender’s standard variable rate but with a guarantee that it won’t go above a set level or ‘cap’ but equally won’t go below a set level or ‘collar’.

Fixed Interest Rate
The interest rate is guaranteed to remain unchanged for a pre-determined period. On expiry of the fixed rate period, the interest rate will usually change to the lender’s standard variable rate prevailing at that time.

Variable Interest Rate
The interest rate will vary in line with the standard interest charged by the recommended lender, meaning the interest rate payable can go up and down at the lender’s discretion and your repayments will change accordingly.

Deferred interest rate
The interest rate payable is less than the standard rate and the difference between the amount that would have been paid and the amount actually paid is added to the original amount of the loan. A deferral period is agreed and your repayments will increase on the expiry of this period so as to repay the interest due on the original loan, plus the unpaid interest accrued during the deferral period.

Mortgage Types

Residential Mortgage
A standard or conventional mortgage whereby the lender provides a loan on an agreed term and repayment basis and is secured on a residential property in which you intend to live as your main residence, often referred to as ‘owner occupied’ mortgages.

Self-Build Mortgage
Arranged for the specific purpose of building a new house and as such offers a staged payment facility so as work progresses funds are released on pre-agreed terms to continue the build until completion. Thereafter standard mortgage terms were agreed on the finished property and valuation.

Buy to Let Mortgage
Arranged to buy property that you intended to let in return for a rental income. It differs from a residential mortgage in that the mortgage terms take into consideration the income the property will produce in deciding how much to lend.

Bridging Loan
A short-term loan to fund personal obligations until permanent financing is secured. The loan typically has a period of 12 months or less with relatively high interest rates and lending is backed by some form of collateral such as real estate.