private wealth mortgages - advice: which mortgage

Repayment or Interest Only. Or combination of both.

Repayment – also called a capital and interest loan. Your monthly payments gradually pay off the amount you owe as well as paying the interest charged on the loan. Provided you make all the payments, the loan will be fully paid off by the end of the mortgage term.

Interest Only – your monthly payments cover only the interest on the loan. They do not pay off any of the capital. You will need to arrange something else, such as an investment or savings plan, to build a lump sum to pay off the mortgage at the end of the term. If you do not pay back the capital you could lose your home. See the section on insurance & protection.

Types of Deal & Interest rate

Fixed Rate – your payments are set at a certain level for a set period of time. Early repayment charges are normally payable during the period of the deal. An advantage if you want to know exactly how much you will pay for a specified period.

You should be aware that if interest rates fall below the fixed rate, you will continue to pay the fixed amount.

Standard Variable - This type of mortgage has an interest rate payable that can rise and fall in line with market conditions (usually the Bank of England base rate). This involves a degree of uncertainty as your monthly repayments can vary.

Discounted – your payments are variable as above, but less than the standard for a set period of time. This operates so that during the period of the deal a percentage of the interest rate is ‘discounted’. As with the fixed rate deal, early repayment charges are normally payable during the period.

Capped - This type of mortgage places a ‘cap’ on the maximum amount of interest, above which the mortgage interest rate cannot rise. It combines the security of knowing that your monthly repayments will not rise above a certain amount, but does allow you to benefit should the rate drop below the cap. This is an advantage if you have a fixed budget.

Tracker – your payments are usually set above or below the Bank of England or another base rate and so always ‘tracks’ changes in that rate.

In summary, variable rates may rise so you have the risk that you may not be able to meet mortgage payments. Fixed rates are static so you may lose out if interest rates fall.

The Key Facts Illustration will give an example of mortgage payments and an indication of payments should the rate rise.

You can also use the FSA’s mortgage calculator at www.fsa.gov.uk/consumer to see what the effect of interest rate rises would be on the amount you wish to borrow.

Our mortgage advisers will also be able to discuss this when they make a recommendation. Contact us.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.