Mortgages
Mortgages are one of the largest single transactions in most people’s lives. Buying a property can be a stressful and time-consuming experience; nowadays the financing of a mortgage is a case of finding and selecting the most suitable mortgage, rather than simply accepting a lender’s offer.
Banks, building societies and smaller niche lenders compete for your business, all offering a variety of interest rate deals, associated fees and other enhancements to attract borrowers.
The two main methods of repaying a mortgage are repayment (capital and interest) and interest only. It is also sometimes possible to set this up using a combination of the two. A description of these methods is provided below.
Repayment (capital and interest) method
Under the repayment method your monthly repayments consist of both interest and capital and, over time, the amount of money you actually owe will decrease. In the early years, your repayments will be mainly interest, so the capital outstanding will reduce slowly at the start of the mortgage.
This method ensures that your mortgage is repaid at the end of the term, providing all payments are made on time and in full.
Interest-only method
As the name suggests, you will only pay the interest on the amount borrowed and none of the capital, so the capital is still outstanding at the end of the term, Therefore you will usually need to take out some kind of investment policy to save up enough money to repay the mortgage at the end of the term.
Traditionally, the preferred product for repaying the capital of an interest-only mortgage was a mortgage endowment policy (which included a set amount of life cover). Customers now tend to use Individual Savings Accounts (ISAs) and pensions to build up a sufficient sum and to take advantage of the tax breaks offered by these products.
For investors seeking rental yield or capital growth, property has historically proved a good investment at a time when returns on other types of asset have been comparatively low.
Rising property values and a booming lettings market have meant that many lenders have developed mortgage products tailored to the needs of would-be landlords. Although the tax treatment of rental income and stamp duty has recently changed, lenders are still offering competitive mortgage products to those entering the buy-to-let market. So, if you’re looking to become a landlord, or building a portfolio, we can advise you on the right mortgage for your needs.
