Mortgage Summary

We will help you make the right choice for YOU!!!!

Which mortgage do you need? Wise One will give you help and advise to enable you to make the best choice for YOU. These are some of the options available:

Tracker Mortgages

Types of Tracker

Trackers offer some security as the rate is guaranteed never to exceed the base rate by more than a fixed margin. But payments will probably fluctuate so they may not be suited to those on a strict budget. As with standard rates, however, tracker rates can be fixed, discounted, stepped, flexible, capped and so on, so are adaptable to individual needs. The rate simply follows the base rate rather than the standard variable rate. For example:-

• Fixed tracker:: The rate will be fixed for a period of time, usually between one and five years. When the initial period is over, the mortgage reverts to a tracker
• Discount tracker: Discounts or stepped discounts that follow the base rate can be built into the start of the mortgage term, again for a set period.
• Capped tracker: Your mortgage rate follows the base rate as with a normal tracker but with the security of a cap to prevent rising above a set level.

Advantages: With a tracker, you benefit instantly from any drop in the base rate, which means you can work out immediately what your pay rate will be as soon as the Bank of England announces it. If your mortgage never reverts to your lender’s standard variable rate your rate will always be competitive with other products. Also, the difference between a tracker rate and the base rate is usually a lot smaller than the margin between standard variable rates and the base rate. And the lenders can’t change this, so in some ways this is a fairer system.

Disadvantages: If interest rates fluctuate, the amount of your repayments will too – and a rise in rates will obviously see them go up. This can make budgeting difficult so if you can’t afford more than a certain amount each month you may not want to take this risk, unless you’re certain rates won’t rise significantly.

Double-check in your lender’s small print that your rate can’t rise. For example, some lenders guarantee that the pay rate will not rise over 1% above the base rate, but may include opt out clauses that in “exceptional circumstances” they can waive that guarantee.

The situation varies between lenders but early repayment charges may be levied if you pay off your mortgage early or switch product or lender before the end of the initial period.

Fixed rate mortgages

Fixed-rate mortgages are simple, reliable ones that everyone understands. The concept is simple – no matter what happens to the base rate, your monthly repayments remain the same for the duration of the initial deal. Current low interest rates have also narrowed the gap between fixed and discounted rates in an unprecedented way.

Interest Rates: With a variable-rate mortgage, your payments may go up or down according to the Bank of England base rate. If interest rates go up, fixed-rate customers have the satisfaction of knowing that their payments will not follow. However, this also means that if they fall, your interest repayments will remain high as they ever were for as long as the fix lasts. Fixed rates tend to be offered at a higher initial rate than variable ones. This is the premium for the peace of mind a fixed rate gives you.

Costs: The price of a fixed rate depends on the length of time you fix for and the amount you need to borrow in relation to the value of your home. As general rule the greater your deposit or equity in your home, the lower the rate will be.

Deciding how to long to fix for is up to you, depending on how you feel the interest rates will go. However, two or three fixes are the most popular. It’s important not to fix for longer than you think you will be comfortable with, as one of the biggest disadvantages of fixed rates is that if you want to remortgage before the fixed period is up you may have to pay sizeable early redemption charges.

You also need to consider the length of time you could be tied into the mortgage at the end of the initial period. The tie-in period can last for several years and cause quite a jump in your monthly repayments. Low initial rates often have longer tie-in periods so check this carefully. As part of WISEONE’s service our Advisers can assess your needs and provide independent advice on what term would be suitable.

Long Term Fixed: With such low rates, the temptation to fix for a long time is strong and people with large financial commitments and who are likely to remain on a tight budget for several years could benefit from fixing for 10 or more years. Extremely long-term fixes aren’t currently popular with either lenders or borrowers.

It makes sense to choose a fixed rate when you think rates are likely to rise. Rates are currently at a low, and while fixed-rate mortgages are an increasingly popular choice because of the savings that can be made, no-one can be absolutely certain which way rates will go.

Discount mortgages

Discount mortgages attract borrowers with their “buy now, pay later” appeal. Lenders offer an initial discount off their standard variable rate when then reverts to the standard variable rate once the set period of the discount is up. A 2% discount on a lender’s standard variable rate of 6.75% means you’d pay interest at a rate of 4.75% for the period of the discount. – but only as long as the standard variable rate stayed at 6.75%. If the interest rates increase and the lenders rate follows, your payments will also increase. Equally of course, if rates fall, your repayments will too. Discount mortgages can be a gamble therefore we can discuss whether this option is right for you and what you are comfortable with.

Stepped Discount: One problem with discount mortgages is at some point the discount will end and your payments will increase to the standard rate. If you were enjoying a substantial discount this can mean a hefty rise in repayments. A stepped discount can help soften the blow by reducing the amount of the discount over a number of years. Allowing you to budget for more gradual increases to your mortgage payments.

Discounted mortgages are most suitable for people who are looking for the cheapest initial payments at any given time but can afford any increased payments if interest rates rise. These mortgages usually come with charges or tie-ins that prevent you from remortgaging or redeeming the loan for a set period of time. It is usually only worth paying the redemption penalty if you can make a saving elsewhere. Also, some lenders will extend the tie-in period beyond the introductory deal with an overhang period.

Capped mortgages

Capped-rate mortgages are a compromise between fixed and variable rate mortgages.

These mortgages have a variable interest rate but there is a fixed upper limit to the amount of interest that will be charged. If the base rate remains stable or falls, the interest remains in line with it and falls too. In this way, capped mortgages combine the most attractive aspects of fixed and variable rate mortgages.

The cap will not last the entire life of your mortgage but can last as long as five years or even more, should you want to commit for that long.

Advantages: They are a safe choice as they offer protection against rates rising. For customers on a tight budget they can be as attractive an option as fixed rates. The bonus is that unlike a fixed product, you benefit from a fall in rates. For example, if you have a five-year capped –rate mortgage at 6% and your lender increases its standard variable rate by 0.5%, your repayments will not change. If the lender lowers its standard variable rate by 0.5%, the interest on your mortgage will fall to 5.5%.

Disadvantages: Capped mortgages are a cautious but secure choice, and inevitably the rates are not as competitive as comparable fixed-rate or discounted products. Lenders do this to ensure their losses will be minimised if the base rate rises sharply. When the capped period is over, your rate will revert to the lender’s standard variable rate. As with fixed and discount products, there will be a tie-in period to prevent you remortgaging away from this rate for a set period of time. Upfront arrangement fees are also common so watch out for high charges.

Cap and Collar: This is a further development of the capped mortgage. This is where you have a cap limiting the maximum you pay and a collar limiting the minimum you pay. The advantage is there is marginally less risk in it for the lender so the rate will be slightly cheaper than a normal capped one and of course your pay rate will still not go above a certain point.

CAM & offset mortgages

Current account and offset mortgages link with your other finances to save you money. They have the features of a standard flexible mortgages, such as over and underpayment facilities, but your finances are linked so that your debt and credit can be offset against each other.

Offsets: With an offset mortgage all your finances are linked, so your current mortgage and savings are held with the same lender. This can include credit cards and personal loans.

What this means is that any accounts in credit are offset against the debit ones, for example your mortgage. So instead of being paid interest on your savings and current account, you don’t pay interest on the equivalent amount of your mortgage debt. For example, if you have a mortgage of £100,000, by having £1000 in your current account and £7000 of savings and offset these against your mortgage, you only pay interest on the remaining £92,000.

Daily interest adjustment: your interest is adjusted daily so your current account and savings are effectively helping to reduce your mortgage everyday.

Tax advantages: one perk is that you can make substantial tax savings. As you don’t have receive any interest on your savings, you don’t have to pay tax on them.

Capital repayments: as long as you cover the interest due on the mortgage each month, you should have the flexibility to repay the mortgage however you want.

CAMS

Cams work in a similar way to offset mortgages but rather than having separate current and savings accounts and mortgage debt, they are amalgamated into one account. Rather than paying off the debt by making monthly repayments, any money paid into the account reduces the amount you owe – lenders normally stipulate you pay your salary into the account.

The biggest advantage of a CAM lies in borrowing. Unlike some offsets, a CAM allows all your borrowing to be conducted at one single mortgage interest rate, which will be far lower than personal loan and credit card rates and overdraft charges. This means you can effectively borrow as much as 99% of your property’s value at any time.

Cashback mortgages

Cashback mortgages provide a lump sum that you can use during the buying process. Usually a percentage of the amount borrowed, cashback is designed to be an incentive for borrowers who decide they need a bit more cash available when they buy a home. You receive the money either when you take out the loan or after the first monthly repayment. Most cashback deals offer around 3% to 5% cashback but it is possible to find deals with as much as 10%.

Rates: Fixed, variable, discounted and capped rates can all come with cashback and they are also available for people who are remortgaging. You may find that the higher the cashback, the less competitive the interest rates.

Terms and condition: Naturally, there are strings attached. If you want to move to another lender or mortgage or pay off a lump sum within the initial or tie-in period, you are likely to incur heavy early repayment charges. This will be some, or even all, of the original cashback sum.

One-off Sums: There are other mortgages that offer a relatively small cashback deal- from £200 to £400. They are designed to appeal to people who need a cash sum to spend on legal fees or surveyors’ costs. They are designed to appeal to people who need a cash sum to spend on legal fees or surveyors’costs – although these will be specified.

Buy-to-let mortgages

Buy-to-let has grown in popularity but to let a property you need a special mortgage. Many people buy-to-let to provide them with security in the future. Buying a property and renting it out privately is against the rules of most conventional mortgages, so if you need a mortgage to buy a property to rent out you will need a buy-to-let (BTL) mortgage. The range of products is wide with fixed, discounted, flexible, variable, tracker all on offer.

Lending Criteria: Buy-to-let mortgages are structured in the same way as residential mortgages – you pay a deposit and choose the type of rate you want to pay. The principle difference is that most lenders calculate how much they are going to lend you based on the property’s achievable rent rather than your income.

Note: We can advise on both Business Buy to Let (BBTL) and Consumer Buy to Lets (CBTL). Of the two, only Consumer Buy to Lets are regulated by the FCA.