Navigating your way through the mortgage market may seem an overwhelming and intimidating process, especially given the abundance of available mortgages and mortgage providers.

However, finding the right mortgage means finding a mortgage tailored to meet your needs, taking into consideration your lifestyle, age and financial situation.  Nevertheless, even after taking these factors into account, you will almost certainly be faced with an enormous variety of mortgages and differing interest rates.

There are three major types of mortgage available on today’s market:

1. Repayment
2. Interest only
3. Flexible

Repayment

A Repayment Mortgage is structured so that the monthly mortgage payments, comprising partly of capital and interest, pay off the original amount borrowed as well as the interest that would be accrued over the mortgage term, by the end of the term.

Points to Note:

• A Repayment Mortgage is clear-cut and uncomplicated.
• It is a surefire way of repaying the loan provided that all payments are made and kept up with.
• Total amount owed decreases as time goes on.
• As interest rates go up in later years, it will not have as much of an influence on the amount owed due to the fact that the capital has decreased.
• It is not compulsory to arrange life cover to repay the mortgage.
• Even though life cover is not always required, it is worthwhile to arrange at least term assurance to ensure the loan can be repaid in the event of your death and to avoid the house having to be sold in order to repay the mortgage.

Interest Only

So called due to the fact that you only pay interest to the lender each month.  The original loan amount remains the same for the term of the loan.  Therefore, suitable investments are planned in order to repay the loan at the end of the term.  These investments are arranged at the beginning of the term and they include Pension Mortgages, Endowment Mortgages, PEP Mortgages, ISA Mortgages, and so on.

The amount originally borrowed on Interest Only mortgages does not change because you only pay off the capital at the end of the term.  This is done by contributing towards the “Repayment Vehicle„ (i.e.: the investment(s)) chosen which should bestow a sufficiently large sum to repay the loan at the end of the term.

Although there appear to be many types of Interest Only mortgages, this is only due to the fact that the name is associated to the relevant investment.  Even though the investments vary, the general nature of the Interest Only mortgages remains the same.

Points to Note:

• Investments are not guaranteed to appreciate so there is a certain amount of risk involved with the Interest Only.
• If the investment does not provide as good a return as was expected, it may not cover the loan.  The onus is then on you to ensure that you can repay the loan at the end of the term.
• Investments associated with Interest Only mortgages are portable meaning that you can keep the investment, add to them and link them to a new mortgage if you move house.
• As a result of the original amount borrowed never going down, if you sell your house that amount will need to be repaid.

Flexible

This is a relatively new type of mortgage which, as the name suggest, is flexible.  It is structured so that you can overpay, underpay and even take payment holidays without incurring any penalties.  Most flexible mortgages have their interest calculated daily, bringing about the full benefits of overpaying.  Regularly overpaying the Flexible Mortgage without later underpaying it could lead to the mortgage being paid off sooner and save you thousands of pounds in interest.

Although Flexible Mortgages fall into either Repayment or Interest Only Mortgages, they have been included here due to all the options that come with them, e.g.: overpaying/underpaying, payment holidays, pay loan off sooner, etc.

Points To Note:

• Permits overpayments and underpayments on mortgages and allows all overpayments to be drawn back.
• Gives you the option to repay your loan before the end of the term by overpaying.
• Usually interest is calculated daily giving the benefit of saving you money when overpayments are made, even if the money is drawn back at a later date.
• Allows you to vary the amount you pay, either overpaying it, under paying it or taking payment holidays as long as you do not exceed your original mortgage threshold.
• Some enable you to use your mortgage account as a current account, giving you the ability to pool your money with the standard current account options of a chequebook and debit card.
• There are generally no penalties for redemption of the mortgage.

Main Benefits

    Vary your payments to adjust to your current financial situation and lifestyle.

• Has the potential to supply you with substantial interest payment savings.
• Permits you to repay the loan before the end of the term using regular overpayments, if you would like to.
• Provides an excellent place to house spare money, e.g.: annual bonus.  This is due to the fact that interest saved on your loan will normally outweigh the amount you would normally receive from a savings account, even prior to income tax which usually affects savings account.

Advice

There are three groups of people who can advise you.  These are Independent Financial Advisors (IFAs), intermediaries (e.g.: brokers) and the lenders themselves.  However, the amount of advice each can give varies.

IFAs can advise on all the issues, the mortgage, associated investments and insurance arrangements they can offer you a full range of products from all the financial services companies on the market.

Intermediaries such as brokers can generally advise on mortgages and will generally have links to companies who can advise and arrange the investment and insurance aspects.

Most mortgage lenders can advise only on the loan but some are tied to a life company and can therefore only arrange the associated investment and insurances through that company.

Important Note

Interest rates can fluctuate with very little warning.  Therefore this is another important area which must be seriously thought about due to the different types of interest rates that are available and their implications.

Current mortgage interest rates depend on the financial markets.  As these rates fluctuate, so too can the amount you pay each month.  However, mortgage lenders put together “Special offers„ to entice you to buy from them.  Some of these special offers include fixed, variable and discounted offers.

Each of these offers has its own advantages and disadvantages.  For example, you may think that interest rates are going to decline so you settle on a variable rate but if the rate goes up, you will have to pay more.  Whereas a fixed rate remains static for a set period of time so that you have a set rate that you pay each month, irrespective of the actual rate at that time.

The Different Interest Rate Types

Variable

Usually known as the standard variable rate.  This rate normally fluctuates in line with the Bank of England interest rate.

Discounted

This is a variable rate but set at a fixed percentage below the lender’s standard variable rate.  If you wish to pay back your loan before the end of the discounted rate, you may have to pay a charge known as a redemption penalty.  In some cases these charges apply for a short time after the discount rate has ended.

Fixed

The rate is static for a set period of time, usually a number of years.  Once this period has ended, the rate goes back to the lender’s variable rate.  Even though you can usually choose the length of the fixed period, the selection will be limited to current offers.  There are often redemption penalties on these rates if you wish to repay the loan before the fixed rate is up and occasionally a short time after.

Capped

These rates limit your payments to variations between a minimum and maximum rate for a set period of time.

Cashback Incentive

As another “special offer„, companies offer cashback as another incentive to use their products.  With cashback the lender will give you a sum of money on completion of the mortgage.  For this type of offer, you are usually restricted to the standard variable rate for a set period, and have to repay some or all the cashback if you wish to redeem your loan sooner.

Protecting Repayments

If, for any reason, you are unable to continue your regular mortgage repayments, your home is at risk of repossession by the mortgage lender.  This could be due to an accident, sickness, redundancy, etc.

Generally lender and intermediaries can offer insurance to protect you should these circumstances arise and it is strongly recommended that you consider taking out such protection.

Paying a Mortgage Off Early

A mortgage is expected to be a long-term commitment but many people find they can pay their loans off before the term is up.  The most common cause of this is you moving home.

You should find out what penalties, if any, will apply should you wish to repay your loan early.  Most lenders will retract the value of discounts or cashback if the loan’s redeemed in the early years and fixed rates usually carry early redemption fees for the period of the fixed rate and sometimes longer.

Loans that allow you to transfer your existing mortgage amount and terms when you move and avoid any redemption charges are known as “portable„.  However, it usually means that you must still satisfy the status requirements of the lender when you move.  There may also be added disadvantages if you need to borrow an amount that is more or less than the original amount.

Not all mortgages are portable.

Mortgage Related Products

Other related products such as life assurance, payment protection and buildings and contents insurance also need to be considered.

Some lenders insist that you buy their own assurance in order to take advantage of their best loan products.  A mortgage adviser will be able to help you decide if the cost of the products are competitive or whether you would do better to consider other options.

When you are not obliged to buy the lender’s own insurance, they will often charge you a modest administration fee if you arrange your own cover.  However, many insurance companies will pay this for you as an incentive.

Valuation

Lenders require a standard valuation to be undertaken on a property before even considering a mortgage application.  This is to ascertain the true value of the property being purchased or remortgaged.

There are two other types of report after the standard valuation, each giving more information.  These are:

• Homebuyer’s Report:  This provides you with information about the general condition of the property.
• Full Structural Survey:  If the property being purchased is more than 10 years old or there are any aspects of the condition of the building that you would like investigated, a full structural survey will give you the required information prior to making a commitment.

Due to the fact that property prices vary according to market conditions, the value of your property may depreciate as well as appreciate.  In future, this could mean that your mortgage loan exceeds the property’s current market value.  This is known as a “negative equity„ situation.

Vulnerable Borrowers and Full Disclosure

Some borrowers may have had bad credit problems in the past or have a low or irregular income making them particularly vulnerable.  Therefore, to assist these people, we have relationships with specialist lenders who follow industry guidelines to protect consumers in such circumstances.

However, a mortgage adviser can only assist you fully if they are fully aware of your situation.  It is therefore imperative to disclose any credit problems, especially if you may require special consideration from the lenders.  Never give misleading information and never be persuaded by your adviser to withhold or distort information that may be important to the application.  This could be looked upon by the lender as mortgage fraud for which the consequences are severe.  At the very least, you could rely on the fact that any fees you had paid would be forfeited if an application is found to be fraudulent.

If a mortgage adviser ever completes paperwork on your behalf, read the completed form full and ensure it is accurate before signing it.  Do not sign it unless you are positive that the information contained in it is correct.

Disclosure of Personal Details

The lender may undertake credit enquiries upon receipt of your mortgage application and may also supply information to a credit agency on the way your account is managed.

Fees

There can be many fees associated with mortgages, which will be explained by your adviser.  The following provides a list of the most common fees and there general explanations.  Often, a lender will waive one or more of these fees as another incentive.

• Application Fee:  This fee covers the administrative expenses incurred whilst processing an application.  These include the cost of staff time involved with taking up references, credit checks, voter’s roll checks and any valuation charges that apply.  Some of this fee is usually deemed non-refundable from the outset and once the application process is well advanced, it is usually considered entirely spent.  The adviser should explain the amount and terms of the fee required.
• Existing / Previous Lender Reference Charges:  If you already have a mortgage and a reference is required from that lender, they will usually charge a fee for providing the reference.  This can often be avoided if annual mortgage statements and bank statements prove satisfactory conduct.
• Booking and / or Arrangement Fees:  These may be charged for specific products and be payable in advance, added to the loan or deducted from the advance on completion.  The mortgage adviser should make you aware of any such fees from the outset.
• Higher Percentage Advance Charge: The lender may impose a charge if the amount required is higher than a certain percentage of the property value.  The charge may be deducted from the advance or added to the loan.  The mortgage adviser should make sure that you know whether the charge will apply and if so, the amount and method of repayment.  Lenders use this money to indemnify themselves against any financial loss they experience, should they have to repossess a property due to a payment default(s).  Although you pay this fee, it will only benefit the lender or any insurer involved from trying to recover all or part of any loss involved.  Such cover will not protect you if your property is subsequently taken into possession and sold for less than the amount you owe.  You will also remain liable to pay all sums owing, including arrears, interest and your lender’s legal fees and interest will continue to mount up as long as the mortgage is outstanding.

Commissions Paid to Intermediaries

It is common for intermediaries to be paid a procurement fee or commission by lenders and brokers for introducing business and doing work which would otherwise have been done by their own staff.

Mutual Lenders

If your lender is a mutual organisation, you should check whether or not you will be entitled to membership rights and any windfall payments resulting from floating the company on the Stock Exchange or if the company gets taken over by another.

YOUR HOME IS AT RISK IF YOU DO NOT KEEP UP PAYMENTS

ON A MORTGAGE OR OTHER LOAN SECURED ON IT

USES OF DATA

A Service of Quality

We place paramount importance on customer service and aim to meet your expectations on every occasion.

To achieve this aim we need accurate personal information about you.  Please help us take prompt and efficient action by informing us of any changes to your personal circumstances by writing to us.

We have a legal obligation under the Data Protection Act to ensure that all information held and processed about you complies with the principles of the Act.

The Act requires all personal information to be treated in the strictest confidence and to be used only for the purposes of which you are aware.

Confidentiality

We will treat all your personal information as private and confidential (even when you are no longer a customer).  Nothing about your accounts nor your name and address will be disclosed to anyone, other than in four exceptional cases permitted by law. These are:

• Where we are legally compelled to do so;
• Where there is duty to the public to disclose;
• Where disclosure is required to protect our interests (this will not be used as a reason for disclosing your information about your accounts, including your name and address, to anyone else for marketing purposes);
• Where disclosure is made at your request or with your consent (this can be either as a result of an application for a product or service or by signing an explicit declaration as part of the application.  Consent does not need to be in writing if the service is provided over the telephone);
• From time to time we will employ agents and sub-contractors to process your information on our behalf.  The same duty of confidentiality and security will apply to our agents and sub-contractors and all processing will only be carried out under our instruction and will be supported by a written contract.

Using Your Personal Information

Providing the service for which you have applied

Your details will be used in providing the service you applied for and for the ongoing administration of the service.  If you are taking out insurance, your details will be passed to the insurers for this purpose.  If you make a claim, any information you provide to the insurers may be put onto a register of claims through which insurers share such information to prevent fraudulent claims. A list of the participants and the address of the operator are available from the insurers.

Keeping You Informed

There may be times when we feel that a service or product offered by us or a select third party may benefit you.  We may use information we obtain from your account transactions in this decision making process.  To make you aware of the services or product we may contact you by mail, telephone, fax, e-mail or other reasonable method to give you further details so that you can make an informed choice

You are, of course, under no obligation to apply for any of the services or products offered.  If you would prefer not to receive any of this information, please write to us at:

Global Finance Services Ltd

7200 The Quorum

Oxford Business Park North

Garsington Road

Oxford

OX4 2JZ

 We will only contact you by fax if you have given explicit consent.

Research & Statistical Analysis

We will use your details to assist us in understanding individual needs and business trends in order to improve the products and services we offer.

Protecting our customers

We always try to protect you from entering into any agreement that may not be in your best interests.  When you apply for credit we may use a process known as Credit Scoring.  This will help us to assess your application to ensure that you are able to re-pay the borrowing comfortably and fulfil our duty to you as a responsible lender.  Declined applications based on this automated technique can be reviewed manually on request.

In considering an application we will search your record at Credit Reference Agencies.  They will add to your credit file details of our search and your application and this will be seen by other organisations that make searches.  We will also add to your record with the Credit Reference Agencies details of your agreement with us, the payments you make under it, any default or failure to keep to its terms and any change of address you fail to tell us about where a payment is overdue.  It is important that you give us accurate information.  We will check your details with fraud prevention agencies and if you give us false or inaccurate information and we suspect fraud we will record this.

We and other organisations may use these records to:

Help make decisions about credit and credit related services for you and members of your household.

Help make decisions on motor, household, credit, life and other insurance proposals and insurance claims, for you and members of your household:

Trace debtors, recover debt, prevent fraud, and to mange your accounts or insurance policies:

Check your identity to prevent money laundering, unless you furnish us with other satisfactory proof of identity.

For these purposes we or they may make further searches.  The Credit Reference Agencies and fraud prevention agencies will also use the records for statistical analysis about credit and about insurance and fraud.

If you have experienced problems obtaining credit we recommend you request a copy of your credit file from the Credit Reference Agencies.  They will charge for this service.  Their addresses are shown below.

Introducers

Where your business has been introduced to us from a third party, we will pass back information about you and your agreement that may be necessary for the purpose of administration, payment or settlement.  The person who introduces you to us may use this information for marketing purposes, but only with your consent.

Sensitive Data

Certain information collected may be classified as sensitive and we can only use such data where we have your explicit consent.  This data relates to racial or ethnic origin, political opinions religious beliefs, trade union membership, physical or mental health, sexual life, criminal proceedings and offences and will only be processed in order to provide the service requested.

The Details We Hold

These uses of your personal information are covered by our notification under the Data Protection Act.  Under the terms of the Act, you have the right to obtain a copy of the information we hold about you, upon payment of the appropriate fee.

We are happy that you have found the information contained in this leaflet of interest.  Please be assured that we will actively review your personal information on a regular basis to ensure it is accurate.

If you have any questions or concerns on the use of your personal information, please do not hesitate to contact us at any time.

Credit Reference Agencies' Addresses

If you would like a copy of your credit file, please write to the following, enclosing a cheque or postal order for £2.  You will need to tell them your full name and address(es) for the last six years.

Experian Limited	Equifax Europe (UK) Ltd.
Consumer Help Service	Dept 1E
PO Box 8000	PO Box 3001
Nottingham	Glasgow
NG1 5GX	G81 2DT