Mortgages Explained   We at mortgagesexplained.com are dedicated to trying to guide you through the difficult process of buying a house and getting the right mortgage. We are completely independent of any lending organisation. When we get advertising at a future date from financial organisations, we vow not to soften our views to make any accommodation. mortgagesexplained is essential for all potential borrowers as it: Shows the disadvantages as well as the advantages Explains the terms used simply Gives you the important questions to ask lenders Highlights potential pitfalls Shows you how to buy a house from start to finish mortgagesexplained tries to explain everything as simply as possible This site is designed with a simple format in order to help you make the best mortgage choice. Remember that you cannot enter into a mortgage unless you are 18 years old, and your home, if it is secured by a mortgage, is at risk of being repossessed by your lender if you do not keep up the repayments.    Copyright 2000 everythingexplained.com While every care has been taken to ensure accuracy of the content of this site, no responsibility can be taken for any errors or omissions. Viewers are strongly advised to check information published with individual institutions, and to take legal advice, where appropriate, before entering into transactions. All interest rates are correct at the time of going to press. The information here is only for your general information and use and is not intended to address your particular requirements. Specifically, the information does not constitute any form of advice or recommendation by us and is not intended to be relied upon by you in making (or refraining to make) any specific investment or other decisions. Appropriate independent advice should be obtained before making any such decision. Neither we nor any of our site-writers make any warranties expressed or implied, as to the accuracy, adequacy, quality or fitness for any particular purpose of this information for a particular purpose or use and all such warranties are expressly excluded to the fullest extent that such warranties may be excluded by law. You bear all risks from any uses or results of using any of this information. You are responsible for validating the integrity of any information received over the internet.

P1   Mortage Choices   We start with how to begin the process of choosing a mortgage. We then look at some of the different choices of mortgage, their advantages and disadvantages, including: Repayment Mortgage Endowment Mortgage Variable Rate Mortgage Fixed Rate Mortgage Discounted Rate Mortgage Cashback Mortgage Flexible Mortgage Interest-Only Mortgage Tracker Mortgage How to Choose a Mortgage Stage 1: Decide how to repay the mortgage Stage 2: Choose how to pay the interest Stage 3: Choose your lender top. Stage 1: How you repay the mortgage Either you repay the capital gradually over the life of the mortgage (a Repayment mortgage) or you make investments which you hope will repay the capital at the end of the mortgage (an Interest-only Mortgage). The Choices Repayment mortgages are more popular now since they guarantee that you will repay the loan. Interest-only mortgages rely your investments (usually one or more endowment policies with an insurance company) to repay the debt. top. or choices Stage 2: How to pay the interest There are two ways to pay the interest, one does not change over a set period (a Fixed Rate mortgage) and the other moves up or down roughly in line with market rates set by the Bank of England (a Variable Rate mortgage). The Choices With Variable Rate mortgages, interest rates and monthly payments can change at any time during the year. This can be good when rates go down, but bad when they go up. Fixed Rates mean certainty of monthly payments, but you won't benefit if rates go down. top or choices Stage 3: Choosing Your Lender There are many types of mortgage lender, with the history of how mortgages first appeared still influencing which type has the major share of the market. Building Societies Building Societies started the market as a way of helping people to help themselves, as mutual societies, with relatively low rates and costs because they had no shareholders to demand dividends from their activities. The many of the largest mutual societies have changed to banks over the last few years. Banks The Banks followed the building societies, initially differentiating themselves by offering larger amounts and greater salary multiples. For the last few years there has been little to choose between the mutuals and the banks because of fierce competition. This will get even better for borrowers as the internet banks become accepted enough by consumers to take away significant amounts of mortgage business due to their lower cost base. Specialist Lenders These tend not to offer aggressively into the normal market because they prefer to take on the slightly higher risks that make some people unusual as borrowers, and charge a premium price to do so.

The Choices Building societies account for most mortgages, but the banks have begun to catch up. Specialist lenders, for exceptions from the normal run of borrowers, or direct lenders (via the telephone or internet) offer some mortgages. Rates can be variable or fixed, and often special deals are quickly sold out. top. or choices Repayment Mortgage As its name suggests is a mortgage where the monthly repayment covers both the interest on the outstanding loan and the repayment of capital. Advantages 1. Simple and easy to understand. 2. Repayment mortgages guarantee the loan will be repaid in full as long as the monthly payment is made. 3. Repayment mortgages are flexible allowing a choice of the length of the outstanding mortgage. It can be any period you like, 5 or 20 years. Although in the UK the traditional mortgages are repaid over 25 years. 4. Repayment mortgages can be fixed, capped, variable, standard, contain cash back etc., but the principle of repayment remains the same. Disadvantages 1. In the early years most of the payment covers only interest and it is only the later years that the capital repayments really grow and kick in. 2. You will almost certainly need to arrange separate life assurance that will pay off the loan in case you die before the end of the loan term. 3. If you move you normally will have to negotiate a new mortgage. 4. If your capital falls below your Miras entitlement you may lose tax relief by a pro-rata percentage. Summing Up Repayment loans are regaining popularity because of the fact that they "guarantee" the loan repayment.The reality has been that a lot of endowments, pension mortgages and other variations on capital builders have just not come up with the goods and left the borrower with insufficient funds to cover the loan at the end of the term. top Endowment Mortgage This mortgage simply splits the monthly payments into two. One payment will pay the monthly interest on the loan and the other will be paid as a premium into an endowment plan with a life assurance company. This builds up a cash sum that is designed to repay your mortgage loan. Advantages 1. Flexibility, as the life assurance is a separate part it can easily be transferred to another property and if necessary added to. 2. All life assurance policies contain life cover and some also cover critical illness or disability cover. 3. There are many forms of life assurance endowments for example "with profits", "unit linked" etc. and a good performing policy could enable you to pay off the mortgage early or leave something extra after paying off the loan. 4. Low start endowments allow the borrower to pay back less at the beginning and only increase premiums at a later stage. These can be particularly interesting for first time buyers with limited expenditure. 5. Under the Miras scheme with endowment mortgages you can claim maximum tax relief as no capital is paid off until the end of the loan. Disadvantages 1. The maturity value of the endowment policies is not guaranteed and the borrower can be left with a shortfall at the end of the loan period. 2. Most endowment policies have large up front charges and therefore if you cash these policies in early you may suffer from this. Also many policies have bonuses at the end of the period and an early redemption can result in a large loss in the policy's real value. 3. Do you really think that the return from an investment can beat the cost you pay on the mortgage? In financial terms you are paying the offered rate and buying the bid rate - which locks in an advantage (fees or yield) for the lenders as a group. Might it not be cheaper to pay off as much of the mortgage as you can as quickly as you are able? This is a difficult question, but one that needs to be addressed before you make the decision on which type of mortgage to go for. top Variable Rate Mortgage This is the standard mortgage where the bank or building society rate rises and falls with general interest rates and can usually be repaid without penalty at any time. Only point to watch for is how quickly and how closely any changes by the Bank of England are followed by the lender. Advantages Normal variable mortgages are flexible allowing early redemption, extra payments, attractive rates, and different periods i.e. 1 year to 25 years. Disadvantages Repayments can go up as mortgage rates rise. top Cashback Mortgage Can occur in a variable or fixed rate mortgage, the cashback is a lump sum paid out by the lender on completion of the mortgage. Advantages 1. Particularly helpful for fist time buyers, can be a big help covering various expenses of moving. 2. Cash can be spent on anything you like. Disadvantages 1. There will be a tie in period. 2. Early redemption will have a penalty. 3. The amount of cashback will directly affect the amount of deposit you must pay. 4. Repayments can go up as mortgage rates rise. 5. Normal variable mortgages are flexible allowing early redemption, extra payments, attractive rates, and different periods i.e. 1 year to 25 years. top Fixed Rate Mortgage A fixed rate mortgage fixes a rate for a certain period of time. These periods normally run for between 2 and 10 years and different rates can apply for different periods. Advantages 1. With a fixed rate mortgage you know exactly the monthly premium you must pay for that agreed period. 2. Fixed rates may be portable so that if you move house you may be able to take the fixed rate with you. 3. Once the fixed period is over you revert back to a normal variable rate in most cases. 4. You may lock in a rate that saves you some or substantial amounts of interest over the period of the fixing, for example - Someone taking out a 5 year fixed rate of, say, 5.99% last October has seen base rates go up, and the current rate of variable interest go up to 7.49% in February 2000. Already there is a considerable saving and if rates continue to rise the saving will be even more. Variable rates would have to fall below 5.99% for this to be a losing deal. Disadvantages 1. After you lock in the fixed rate normal variable rates may fall below the fixed rate therefore costing more than you would have paid on a normal variable mortgage. 2. Normally for fixed rate mortgages there is a booking or arrangement fee. 3. If for whatever reason you would like to redeem the mortgage early there will be a redemption cost and this can be extremely expensive. top Interest Only An interest only mortgage is just that. All the borrower pays is their interest repayment on a monthly basis. Normally people take out interest rate only mortgages when they expect to be able to pay off the loan in a certain time e.g. money in trust, endowment policy, or taking cash from a pension. Advantages 1. Low monthly mortgage repayments (as it is interest only). 2. As no capital is repaid you can receive the maximum amount available of tax relief for the mortgage under the Miras scheme. Disadvantages 1. You can normally only borrow a much lower percentage than under a normal mortgage. Maximum would probably be something like 70-75%. 2. Normally you must have life assurance against the mortgage and in some cases long term disability or illness insurance is a requirement. top Discounted Rate Mortgage A number of lenders are now offering discounted mortgages as a way of attracting new customers. Some of these offers are extremely attractive at this time. Advantages 1. Discounted period can last normally from a few months up to about 2 years. 2. The discount rate offers, as it says, a discounted rate below the normal variable rate. 3. Often there are no redemption penalties. Disadvantages 1. You cannot guarantee what your monthly repayment will be. Discounted rates will still fluctuate i.e. a 2% discounted rate for 2 years if set when rates are 5¾ % will be 3¾ % but if rates go up to 6% the discounted rate will go up to 4%. top Tracker Mortgage A mortgage directly linked to an interest rate, normally in the UK the base rate with a fixed rate margin above. For example if the tracker is for £100,000 or more and set at Base Rate + 1% With Base Rate currently 6%, mortgage rate will be 6% + 1% = 7% If rates move from 6% to 5¾ % the tracker mortgage rate will then track that rate moving down from 7% to 6¾ %. Advantages 1. The tracker mortgage is automatically linked to a reference rate so you know immediately the change in the tracker rate when the reference rate changes. 2. Tracker rate is normally below normal variable rate. 3. Normally no charges for early redemption. 4. You can consider additional borrowing linked to your mortgage makeover payments or take a payment holiday period. Disadvantages 1. There is normally an administration or booking fee. 2. The rate can rise if the reference rate goes up. top Flexible Mortgage A flexible mortgage does exactly what it says, allows flexibility. It enables you to manage cash flow over the long term using your mortgage allowing you to access "cheap money" if you find you need it (provided you have built up some form of overpayment or are under your agreed mortgage limit). The interest on a flexible mortgage is calculated daily so any overpayment takes immediate effect. Some flexible mortgages have been combined with bank accounts taking any credits into account on a daily basis. For example, if your salary is say £2,000 and it is paid in on 1st January, while that money is in your account it will reduce the cost of your monthly interest building up on overpayment. Advantages 1. You can make overpayments at any time without penalty, 2. Daily interest charges enable any overpayment to be taken account of immediately thus reducing your overall mortgage cost, 3. You can reduce your mortgage repayments or even take a payment holiday if you have built up enough overpayments or your overall mortgage limit allows this, 4. You can borrow a lump sum from your mortgage if you have built up enough overpayment or you are below your agreed limit, 5. You can utilise any surplus funds to keep building up an overpayment, 6. A flexible mortgage can include other mortgage type characteristics. For example, it can be interest only, repayment, fixed, capped, discounted etc., as well as having the flexible advantage. Disadvantages 1. Your payments will go up if interest rates go up. Remember It is important to check the terms of the flexible mortgage you pick carefully as they can vary a great deal. Some may be a lot more flexible than others. For example some may only allow a certain period, say maximum 6-9 months for a payment holiday or limit the amount you can borrow if you have an overpayment credit or have not used up your mortgage limit. top Copyright 2000 everythingexplained.com

P2   Deals   We intend this page to serve two purposes. Firstly, as a site where we can tell you what we think the best type of deals are at the moment. With so much competition, we cannot necessarily say which deal amongst the choices within one type of deal will suit you best, but we can say what those best types are. Secondly, we want to give you a chance to pass on your own experiences of getting a mortgage or any part of the house-moving process to other viewers. We would encourage you to send us shortish (4 or 5 paragraphs should be a target) outlines of your experiences that we can post on this site. We may have to edit some of the stories for legal or other reasons, but we will give you credit for the posting. Please e-mail your stories to us at mortgagesexplained.com. Best Buy Deals Our current best buy deal types are Flexible mortgages and Discount mortgages. Both are being heavily advertised, but they represent good value for money at the moment. Take advantage of the current extremely competitive situation. Your Mortgage or House-Moving Related Stories: Posted by: None Yet Posted This text is where your story would go. Copyright 2000 everythingexplained.com

P3   Questions   On this page we invite you to send us questions. We cannot guarantee to have answers for you, but we will try to help. Some of the questions asked will be listed here, if we think that the questions and answers are of sufficient general interest. However, we cannot give you individual replies or advice, since we are not authorised to do so in this way. Our answers will be aimed at people that have a problem of a specific type, but without naming either individuals or organisations. Our answers will be those that apply to the best of our knowledge, but questioners should take specific advice before relying on our answers. What we will try to do is to enable you to ask the right questions of advisers and to understand the answers and the implications of those answers. Please fill in this form if you have a question you would like answered, or e-mail us at  questions@mortagesexplained.com . To Ask Questions: First Name Surname E-mail Address Questions for this Website   Previous Questions Asked: 1. 2. 3.   Copyright 2000 everythingexplained.com

P4   Try These Sites   Whilst browsing the Internet we occasionally come across excellent financial sites on mortgages or related subjects. We will list these for your future reference.