Mortgages & Re-Mortgages...

Helping you build your future

Mortgages and Re-mortgages

We don’t expect you to know what deal is best for you, that’s our job. Working with you and understanding your circumstances and needs we ensure we recommend the best mortgage to suit you.


What is a mortgage?

A mortgage is a loan from a bank, building society or lender that lets you buy a property, either to live in, rent out or use as a second home. You then pay back the amount you have borrowed plus interest over an agreed period of time often around 25 years, although you can take them out over longer or shorter terms. The mortgage is secured against your property until you have paid it off in full.
You’ll usually need to put down a deposit for at least 5% of the property value, and a mortgage allows you to borrow the rest from a lender.
There are two main mortgages
Whether you are taking out a new mortgage, or considering changing your mortgage repayment type, it’s important to understand the differences between interest-only mortgages and repayment (capital and interest) mortgages, in terms of both how they work, and how much you’ll have to pay each month.

Interest Only

Interest-only mortgages have the advantage of lower monthly payments, but that’s because your payment only covers the interest being charged on the amount borrowed. The actual mortgage balance, or capital, doesn’t reduce over the mortgage term, but is repaid in full at the end or by lump sum reductions throughout, usually by means of a repayment vehicle such as an endowment policy, ISA or other investment plan. Lenders are not as keen on interest only mortgages recently and therefore the criteria is generally that you will need more than 40% deposit or equity in the property to gain one. That said lenders change their products pretty often, so it always best to check with us as the what is available and at what terms.

Repayment Mortgage

A repayment mortgage has a higher monthly payment than an equivalent interest-only mortgage, and that’s because each month a portion of the debt is being paid off, so by the end of the agreed mortgage term the balance has been reduced to zero. Because the mortgage capital is always reducing, this also means that you will typically pay less total interest over the overall mortgage term in comparison to an interest-only mortgage.
Mortgage interest rates vary with market conditions – at any given time there might be hundreds of different mortgage products on the market – and can also depend on factors such as the amount of deposit you’re able to put down, and your credit score.

If you want to see how much you can potentially borrow check out our mortgage calculator here

Mortgage deals

Below are some of the mortgage deals available of the market


Standard Variable Rate (SVR)

Independent of the Bank of England Base Rate, enders set their own interest rate. Your payments can go up as well as down and are dependent on any changes in interest rates. An SVR is generally the lenders rate you will be moved on to, when an introductory fixed rate, tracker or discounted deal has completed.


Fixed Rate

A fixed rate mortgage has an interest rate which stays the same for a set period of time, generally 2, 3 or 5 or even 10 years Fixed rates provide you with peace of mind, as you know exactly what your monthly payments will be for the fixed term of the mortgage.
There is no fluctuation of interest rates for the fixed term and at the end of the period the fixed rate reverts to the lender’s standard variable rate (SVR). However, you can do a product transfer to another fixed rate and we will always advise you near to your end date to discuss what is available to you.


Discount

A discounted rate allows you to benefit from a reduction in the lender’s SVR. If this increases or decreases, the discounted rate does too. While different periods are available, either two, three or five years, usually the shorter the discounted period, the larger the discount for you.


Flexible Rate

A flexible mortgage as the name suggests, gives you flexibility around your payments. It allows you to overpay, underpay or even take a ‘payment holiday’. This provides you with the opportunity to pay your mortgage off early and save money on interest. However, because of this ability, flexible rate mortgages are usually more expensive than conventional ones. The different features for these types of mortgages also tend to differ, according to the lender chosen.


Tracker

Tracker mortgages are usually linked to the Bank of England bank rate, which means they will change if this does. Other tracker rates follow the London Interbank Offer Rate (LIBOR).
Tracker rates are usually at a margin above the rate they follow. They can be for an introductory period or for the whole period of your mortgage. If you choose a tracker rate your mortgage will usually transfer to the SVR or an alternative tracker rate (with an increased margin) at the end of the initial term.


Re-mortgage

If you already have a mortgage and you want to either draw some equity (the difference between your mortgage amount and the value of the house, it’s called loan to value – or LTV) or you want to move to a new lender or deal. You can actually re-mortgage at any time but there’s no point doing it unless there is a positive advantage in moving mortgages as more often that not re-mortgaging will incur some charges and if there is no financial benefit from re-mortgaging it will almost certainly cost you money.


A good time to re-mortgage is when:
• interest rates are lower than you’re paying at the moment
• you have equity of at least 10% (loan to value) in your home
• you’ve come to the end of a fixed rate mortgage deal
• the benefits outweigh the costs

It used to be that people stayed with the same lender for the whole period of the mortgage. This is no longer the case. You can switch mortgages just as you can move from one energy provider to another.
When interest rates are low
Lenders are continually launching new mortgage products and deals and if you’ve had your mortgage for a few years, you’ll probably find there are cheaper deals around. This can save a lot of money, in fact a recent survey suggested that moving from an SVR to a fixed rate deal in July 2020 could save you on average £4,200 per year!
You can fix yourself in to a low interest rate and know that your repayments will stay the same for the term you have taken the deal for, whatever happens to other rates.
There’s one risk to watch out for: if your existing mortgage is a special deal, you might be tied in and have to pay an early redemption charge for switching before the end of the deal. We will help you check this before we advise.

When you have enough equity in your house
If the price of your house has gone up, your mortgage will be a smaller percentage of the property’s value than it was when you started.
The more equity you own and the lower the LTV, the better re-mortgage deals will be available to you, lender like less risk, so the more you have available, the less they risk on your lending, hence the better the deals.
If your mortgage is 55% of the house price, you now have the equivalent of a 45% deposit in the property, opening up more deals.
There are lots of options we can work through with you, everyone’s circumstances are different, it’s always better to get advice specifically to meet your situation.

If your fixed term mortgage is due to finish
Fixed rate mortgages run for a set term, typically between 2 and 10 years, and then move to the lender’s standard variable rate of interest (SVR) which is almost certainly higher. If you have a fixed rate mortgage coming to an end, you’ll need to re-mortgage, if you don’t want to go on to the variable rate.
Whether interest on the re-mortgage is the same as you’ve been paying, higher or lower, will depend on what’s happening to rates in the UK at the time. We will shop around to see what is on offer across all lenders and products.
If you want to re-mortgage before your fixed rate comes to an end, you’ll probably have to pay early repayment charges. Usually this isn’t worth paying but you should consider it if interest rates have dropped since you took out your fixed rate mortgage. We can guide you on this

When you will be paying less even after paying the costs
Moving from one lender to another involves time and money. You will nearly always have to pay several different fees such as:

• arrangement fee
• valuation fee
• legal fees
• exit fee
Obviously there is no point in re-mortgaging if you end up out of pocket. We will advise you on the right solution for you.

Get in touch today 01423 561060 or email info@sj-fs.co.uk