We will help you make the right choice for YOU!

Which mortgage do you need? Wise One will give you help and advise to enable you to make the best choice for YOU. These are some of the options available:

Tracker Mortgages

Types of Tracker

Trackers offer some security as the rate is guaranteed never to exceed the base rate by more than a fixed margin. But payments will probably fluctuate so they may not be suited to those on a strict budget. As with standard rates, however, tracker rates can be fixed, discounted, stepped, flexible, capped and so on, so are adaptable to individual needs. The rate simply follows the base rate rather than the standard variable rate. For example:-

Fixed tracker:: The rate will be fixed for a period of time, usually between one and five years. When the initial period is over, the mortgage reverts to a tracker
Discount tracker: Discounts or stepped discounts that follow the base rate can be built into the start of the mortgage term, again for a set period.
Capped tracker: Your mortgage rate follows the base rate as with a normal tracker but with the security of a cap to prevent rising above a set level.

Advantages: With a tracker, you benefit instantly from any drop in the base rate, which means you can work out immediately what your pay rate will be as soon as the Bank of England announces it. If your mortgage never reverts to your lender’s standard variable rate your rage will always be competitive with other products. Also, the difference between a tracker rate and the base rate is usually a lot smaller than the margin between standard variable rates and the base rate. And the lenders can’t change this, so in some ways this is a fairer system.

Disadvantages: If interest rates fluctuate, the amount of your repayments will too – and a rise in rates will obviously see them go up. This can make budgeting difficult so if you can’t afford more than a certain amount each month you may not want to take this risk, unless you’re certain rates won’t rise significantly.

Double-check in your lender’s small print that your rate can’t rise. For example, some lenders guarantee that the pay rate will not rise over 1% above the base rate, but may include opt out clauses that in “exceptional circumstances” they can waive that guarantee.

The situation varies between lenders but early repayment charges may be levied if you pay off your mortgage early or switch product or lender before the end of the initial period.

Libor mortgages

Libor mortgages work in exactly the same way as base rate trackers but mirror a different interest rate – the London Inter Bank Offered Rate – the rate at which banks offer to lend money to one another in the wholesale money markets in the City of London. Historically, this rate has been lower than the base rate – but as with any financial product, past performance is no indication of future trends.

Fixed rate mortgages

Fixed-rate mortgages are simple, reliable ones that everyone understands. The concept is simple – no matter what happens to the base rate, your monthly repayments remain the same for the duration of the initial deal. Rarely the cheapest mortgages on the market, there are nonetheless a range of attractive products offering affordable stability. Current low interest rates have also narrowed the gap between fixed and discounted rates in an unprecedented way.

Interest Rates: With a variable-rate mortgage, your payments may go up or down according to the Bank of England base rate. If interest rates go up, fixed-rate customers have the satisfaction of knowing that their payments will not follow. However, this also means that if they fall, your interest repayments will remain high as they ever were for as long as the fix lasts. Fixed rates tend to be offered at a higher initial rate than variable ones. This is the premium for the peace of mind a fixed rate gives you.

Costs: The price of a fixed rate depends on the length of time you fix for and the amount you need to borrow in relation to the value of your home. As general rule the greater your deposit or equity in your home, the lower the rate will be.

Deciding how to long to fix for is up to you, depending on how you feel the interest rates will go. However, two or three fixes are the most popular. It’s important not to fix for longer than you think you will be comfortable with, as one of the biggest disadvantages of fixed rates is that if you want to remortgage before the fixed period is up you may have to pay sizeable early redemption charges.

You also need to consider the length of time you could be tied into the mortgage at the end of the initial period. The tie-in period can last for several years and cause quite a jump in your monthly repayments. Low initial rates often have longer tie-in periods so check this carefully.

Long Term Fixed: With such low rates, the temptation to fix for a long time is strong and people with large financial commitments and who are likely to remain on a tight budget for several years could benefit from fixing for 10 or more years. Extremely long-term fixes aren’t currently popular with either lenders or borrowers.

It makes sense to choose a fixed rate when you think rates are likely to rise. Rates are currently at a low, and while fixed-rate mortgages are an increasingly popular choice because of the savings that can be made, no-one can be absolutely certain which way rates will go.

100% Mortgages

100% mortgages can help you buy a home without a deposit. Many first or second time buyers who can easily afford mortgage repayments are unable to scrape together the money for a deposit. However, if you are in this tricky position, you could still boy with a 100% mortgage.

Costs and Mortgages

The lender is taking an increased risk, hence the rates and penalties are high.

Interest rates : You cannot expect the cheapest rates on a 100% loan. You might expect to pay 0.5% or 1% more than if you had a deposit – around 5% or 6%. The rate could be either variable or fixed, although tracker and discounted rates are also available to help bring down initial costs.

Arrangement fees: surprisingly, arrangement fees are no higher than with fixed or discounted rates, for example.

HLCs: Where you will feel the fees, however, is with the Higher Lending Charge (HLC), which many lenders-though not all-charge on loans above 90% loan-to-value. This fee is the lenders protection should you default on the loan – something you are, in theory, more likely to do the larger the loan is.

As a borrower, you don’t get any benefit from HLCs – you simply have to pay up – and as it is a percentage of the loan, this can run into thousands of pounds. It is possible to avoid HLC’s if you shop around but be wary of where else you are paying to compensate for this.

Redemption charges: Early redemption charges on a 100% mortgage won’t necessarily be any harsher than for standard loans, but with a higher loan, they will cost you more if you try to remortgage before the tie-in period is up.

Affordability: Having a 100% mortgage does make you vulnerable to fluctuations in the housing market. If prices were to drop suddenly in your area, selling your property may not repay your mortgage and you could find yourself in negative equity.

This is only something to be afraid of, however, if you decide or are forced to sell. As long as you can afford your mortgage repayments, it doesn’t matter what your property is worth because you are still paying off your long term debt.

It is more important to make sure you can cope with a rise in interest rates than a fall in house-prices. 100% mortgages are not suitable for people who only want to stay in that property for a short period of time.

Advantages: A house is probably the largest purchase most of us will ever make and taking on a 100% mortgage is a serious commitment. However:

they allow you to get onto the property ladder without a deposit
they allow you to invest in the market more quickly than if you were waiting to save for one
they allow you to use your savings to meet other home buying costs and when prices are increasing you will be better off financially and can switch to a lower rate.

Discount mortgages

Discount mortgages attract borrowers with their “buy now, pay later” appeal. Lenders offer an initial discount off their standard variable rate when then reverts to the standard variable rate once the set period of the discount is up. A 2% discount on a lender’s standard variable rate of 6.75% means you’d pay interest at a rate of 4.75% for the period of the discount. – but only as long as the standard variable rate stayed at 6.75%. If the interest rates increase and the lenders rate follows, your payments will also increase. Equally of course, if rates fall, your repayments will too. Discount mortgages can be a gamble and its up to you to judge how comfortable you feel with a variable rate.

Stepped Discount: One problem with discount mortgages is at some point the discount will end and your payments will increase to the standard rate. If you were enjoying a substantial discount this can mean a hefty rise in repayments. A stepped discount can help soften the blow by reducing the amount of the discount over a number of years. Allowing you to budget for more gradual increases to your mortgage payments.

Discounted mortgages are most suitable for people who are looking for the cheapest initial payments at any given time but can afford any increased payments if interest rates rise. These mortgages usually come with charges or tie-ins that prevent you from remortgaging or redeeming the loan for a set period of time. It is usually only worth paying the redemption penalty if you can make a saving elsewhere. Also, some lenders will extend the tie-in period beyond the introductory deal with an overhang period.

Capped mortgages

Capped-rate mortgages are a compromise between fixed and variable rate mortgages.

These mortgages have a variable interest rate but there is a fixed upper limit to the amount of interest that will be charged. If the base rate remains stable or falls, the interest remains in line with it and falls too. In this way, capped mortgages combine the most attractive aspects of fixed and variable rate mortgages.

The cap will not last the entire life of your mortgage but can last as long as five years or even more, should you want to commit for that long.

Advantages: They are a safe choice as they offer protection against rates rising. For customers on a tight budget they can be as attractive an option as fixed rates. The bonus is that unlike a fixed product, you benefit from a fall in rates. For example, if you have a five-year capped –rate mortgage at 6% and your lender increases its standard variable rate by 0.5%, your repayments will not change. If the lender lowers its standard variable rate by 0.5%, the interest on your mortgage will fall to 5.5%.

Disadvantages: Capped mortgages are a cautious but secure choice, and inevitably the rates are not as competitive as comparable fixed-rate or discounted products. Lenders do this to ensure their losses will be minimised if the base rate rises sharply. When the capped period is over, your rate will revert to the lender’s standard variable rate. As with fixed and discount products, there will be a tie-in period to prevent you remortgaging away from this rate for a set period of time. Upfront arrangement fees are also common so watch out for high charges.

Cap and Collar: This is a further development of the capped mortgage. This is where you have a cap limiting the maximum you pay and a collar limiting the minimum you pay. The advantage is there is marginally less risk in it for the lender so the rate will be slightly cheaper than a normal capped one and of course your pay rate will still not go above a certain point.

Remortgaging

A remortgage is the same as any other mortgage – except you’re not buying a house. When you remortgage you will still choose the rate you’ll pay, the repayment method and the type of product from any lender in the market. You don’t have to change lenders. Your aim is to find a deal that improves on your existing mortgage.

Reasons to remortgage vary:-

save money – remortgaging can significantly reduce your monthly outgoings
reduce the length of the loan – with extra money each month and more flexible products it’s possible to overpay your mortgage loan and pay it off early without redemption penalties.
Release equity – by remortgaging for a sum that is greater than the amount needed to repay your mortgage, you can release money to buy a new car, make DIY improvements or invest in a second home.
Change product – if you get stuck with a standard rate or with a poorly performing endowment mortgage you can change product with all the options available to a first-time buyer
Switch from an unsatisfactory lender: switching from one to another has never been easier
Increase flexibility – remortgaging from a standard mortgage to a flexible one, current account mortgage or offset product will allow you tounder and overpay your mortgage and release equity without having to get permission from your lender.

Costs and penalities: You will have to have your house re-valued and this will charged together with additional legal and possibly administration fees. May lenders offer remortgage packages that refund these costs on completion of the deal, providing you use their recommended surveyors and solicitors. You may face substantial costs if there are early repayment charges associated with your existing mortgage.

It’s always worth weighing up the savings you can make with a remortgage against the costs and penalties. It may be worth paying these for the benefit of the new loan, particularly if the redemption fee is small.

A remortgage usually takes about six weeks. If you need to remortgage fast, some lenders offer fast-track services that can complete in as little as a week, but this does depend on your individual circumstances.

Flexible mortgages

Flexible mortgages allow you to over and underpay, and take payment holidays. The standard features are:-

Overpayments: you can make regular or occasional extra payments without incurring early repayment charges. This enables you to pay off your loan more quickly, which means you play less interest. Also, no charge will be levied if you decide to pay the mortgage off in full.
Underpayments: you can make reduced payments for one or more months during a period of reduced income or extra expenditure. You need to get permission from your Lender beforehand.
Interest calculated daily: every overpayment has an instant effect on the total amount you owe as interest is calculated daily rather than annually. This means that the balance is instantly reduced and no further interest is charged.
Payment holidays: you can take a break from paying the mortgage for one or more months. Some lenders limit the frequency of underpayments or holidays, some only permit them after 6, 12 or 24 months and others do not permit in certain circumstances, such as redundancy.
Drawdown facility: you can withdraw money up to a pre-agreed borrowing limit, or equal to the sum of overpayments made previously. It is a cheaper way of borrowing money than through personal loans or credit cards.

Flexible mortgages give you control over your finances. You can make regular overpayments or pay in lump sums. Paying off your mortgage early can also potentially save you thousands in interest repayments. However, if you make underpayments and take payment holidays, the overall amount you owe will increase. Your mortgage repayments will be recalculated to ensure mortgage is still repaid in full by the end of the term.

CAM & offset mortgages

Current account and offset mortgages link with your other finances to save you money. They have the features of a standard flexible mortgages, such as over and underpayment facilities, but your finances are linked so that your debt and credit can be offset against each other.

Offsets: With an offset mortgage all your finances are linked, so your current mortgage and savings are held with the same lender. This can include credit cards and personal loans.

What this means is that any accounts in credit are offset against the debit ones, for example your mortgage. So instead of being paid interest on your savings and current account, you don’t pay interest on the equivalent amount of your mortgage debt. For example, if you have a mortgage of £100,000, by having £1000 in your current account and £7000 of savings and offset these against your mortgage, you only pay interest on the remaining £92,000.

Daily interest adjustment: your interest is adjusted daily so your current account and savings are effectively helping to reduce your mortgage everyday.

Tax advantages: one perk is that you can make substantial tax savings. As you don’t have receive any interest on your savings, you don’t have to pay tax on them.

Capital repayments: as long as you cover the interest due on the mortgage each month, you should have the flexibility to repay the mortgage however you want.

CAMS

Cams work in a similar way to offset mortgages but rather than having separate current and savings accounts and mortgage debt, they are amalgamated into one account. Rather than paying off the debt by making monthly repayments, any money paid into the account reduces the amount you owe – lenders normally stipulate you pay your salary into the account.

The biggest advantage of a CAM lies in borrowing. Unlike some offsets, a CAM allows all your borrowing to be conducted at one single mortgage interest rate, which will be far lower than personal loan and credit card rates and overdraft charges. This means you can effectively borrow as much as 99% of your property’s value at any time.

Cashback mortgages

Cashback mortgages provide a lump sum that you can use during the buying process. Usually a percentage of the amount borrowed, cashback is designed to be an incentive for borrowers who decide they need a bit more cash available when they buy a home. You receive the money either when you take out the loan or after the first monthly repayment. Most cashback deals offer around 3% to 5% cashback but it is possible to find deals with as much as 10%.

Rates: Fixed, variable, discounted and capped rates can all come with cashback and they are also available for people who are remortgaging. You may find that the higher the cashback, the less competitive the interest rates.

Terms and condition: Naturally, there are strings attached. If you want to move to another lender or mortgage or pay off a lump sum within the initial or tie-in period, you are likely to incur heavy early repayment charges. This will be some, or even all, of the original cashback sum.

One-off Sums: There are other mortgages that offer a relatively small cashback deal- from £200 to £400. They are designed to appeal to people who need a cash sum to spend on legal fees or surveyors’ costs. They are designed to appeal to people who need a cash sum to spend on legal fees or surveyors’costs – although these will be specified.

Self cert mortgages

If you’re employed or your income fluctuates, a self-cert loan could be the answer. Lenders tend to approve mortgage applications on the basis of long-term and regular income, usually with at least three years of payslips. Self-cert mortgages are for people whose income is difficult to assess using the usual methods. They allow you to declare your income without accounts to back them up.

The decision on whether or not to lend to you will be based on how confident the lender is that you will be able to repay the mortgage.

You may have to consider a self-cert mortgage if you:

Are self-employed
Get a large proportion of your income from commissions or overtime
Work on a contractual basis
Work part-time or irregular hours
Have numerous strands of income
Rely on bonuses as opposed to your normal wage
If you’re self-employed, don’t assume that you can only choose a self-cert mortgage, however. Many lenders have relaxed their lending criteria, enabling you to avoid the sizeable fees and early repayment charges that can make self-cert mortgages expensive.

Costs: Self-cert mortgages represent a slightly higher risk for lenders so interest rates are higher than for conventional mortgages. Self-certs are normally 0.5% to 1.5% above mainstream rates.

Adverse credit mortgages

Adverse credit mortgages are specialist products for people with a poor history

If you’ve previously incurred mortgage or loan arrears, had a county court judgement (CCJ) issued against you or been declared bankrupt, you may struggle to find a conventional mortgage.

The market: There are many degrees of poor credit and the adverse credit market reflects this. For example, light adverse mortgages are designed for people who are just on the edge of adverse credit. The rates and loan-to-value limits are lower than for those with poorer credit histories to reflect the differing level of risk to the lender.

Rates and costs: Interest rates tend to be higher for adverse credit mortgages because the lender is taking on more risk with someone who has had previous financial problems. You will, however, need to put down a bigger deposit than with a conventional mortgage – 30% and 35% deposits are quite common for heavy adverse mortgages.

Assessment: Adverse credit lenders employ specialist underwriters to assess your case individually. They will also look at the reasons for your poor credit history and take these into account. You will be asked to provide full details of your finances, as well as proof of income and some proof of recent loan or mortgage repayments.

Credit repair: If you have stayed with your lender for a period of time (usually around three years), successfully made your mortgage repayments over that time and have no outstanding defaults or CCJs you should have ‘repaired’ your credit rating.

Buy-to-let mortgages

Buy-to-let has grown in popularity but to let a property you need a special mortgage. Many people buy-to-let to provide them with security in the future. Buying a property and renting it out privately is against the rules of most conventional mortgages, so if you want to do this you need a buy-to-let (BTL) mortgage. And the range of products is wide with fixed, discounted, flexible, variable, tracker and self-certification loans all on offer.

Lending Criteria: Buy-to-let mortgages are structured in the same way as residential mortgages – you pay a deposit and choose the type of rate you want to pay. The principle difference is that most lenders calculate how much they are going to lend you based on the property’s achievable rent rather than your income. The achievable rate needs to be between 100% and 150% of the mortgage repayments.

Rates and costs: Generally you can borrow up to a maximum of 75% to 85% of the purchase price. Deposits are higher for BTL loans because lenders need to be convinced that you’re committed to the extra financial responsibility. And the investment is a significant one, as you will need a large deposit plus the funds to cover the mortgage payments when the property is empty.

And when you sell the property, remember that you will probably be liable for capital gains tax so employ a good accountant or financial advisor from the start to help you minimise the effects of this as much as possible.

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