MORTGAGES
FOR YOU
Every mortgage we arrange is bespoke. Before we recommend a lender we get to know you; your lifestyle, income and goals.
We will tailor a mortgage to precisely fit your needs, whether you are buying for the first time, buying to invest, moving home or a combination.
A million miles away from a comparison site, our expert advisers have access to exclusive deals and will show you the way with clear, considered recommendations.
HERE IS THE DISCOVERY MORTGAGE SERVICES GUIDE TO MORTGAGES AND MORTGAGE TERMINOLOGY.
Mortgage Rates
The interest rate determines how much interest you will have to pay back over the term of the mortgage. We have compiled a guide below to explain some key points regarding the different mortgage types available in the market.
Fixed Rate
With a fixed rate mortgage, no matter what happens to interest rates, your mortgage payments are guaranteed to stay the same for an agreed period, usually between two, three or five years but sometimes longer.
This means that you can confidently plan your budget for the whole of that period because you know in advance exactly what your mortgage costs will be.
Generally speaking, the longer the period during which the rate is fixed, the higher that rate will be. In other words, the longer the period of security you opt for, the more it costs you.
When the fixed rate period is over, your mortgage will revert to the lender’s prevailing variable rate.
Variable Rate Mortgages - Discount & Tracker
These types of interest rate are typically lower than fixed rates but can change from month to month, so have the potential to increase over time. As the name suggests, a discount rate gives borrowers a discount on a lender’s internal rate, sometimes known as the bank rate or Standard Variable Rate, for a set period of time.
A tracker rate typically follows the Bank of England base rate, usually with a loading above it. As the base rate moves, your rate (and repayments) will increase or decrease with it. For example, if the Bank of England base rate was 1.00% and you had a 0.50% loading, your rate would be 1.50%.
It is important you budget for any potential increases in interest rates.
Flexible Mortgages
These are often linked to a current account, with the ability to ‘offset’ savings balances against the mortgage balance. Typical features include being able to under/over pay (without penalty) enjoy payment holidays and being able to borrow additional money (subject to conditions) against your property.
How much you can borrow?
As a general guide, provided you are in permanent employment, have a reasonable deposit and have a good credit rating, a lender will consider lending up to 5 times your annual income.
If you are applying in joint names, the whole of your partner’s income can be added too. Generally, you can normally borrow around 4 times your combined incomes. Many lenders allow you to borrow more depending on your individual circumstances. Some lenders will also be willing to take other forms of income into account, such as investment, maintenance or tax credit income. We will be happy to discuss this with you if required.
These days, most lenders use an affordability calculator, rather than a set number of times income. For example, this means that someone without children may be able to borrow more than someone with children. Similarly, someone taking a 25 year mortgage may qualify for a higher loan then someone wanting a 10 year term. Approval of your loan will be subject to the lender’s assessment of your ability to pay. This assessment may include information on how you have handled your financial affairs in the past and, with your
consent, information from credit reference agencies and from other sources such as your employer or previous lender. Lenders’ criteria vary and we will be pleased to discuss this with you.
Repaying your mortgage
Capital and Interest
Sometimes known as a repayment mortgage, this is where your monthly payments to the lender are made up partly of the interest on the outstanding loan and partly repayment of the loan itself.
In this way, you gradually pay off the full amount of your mortgage over the repayment period. In the early years, more interest than capital is paid, but in time this will change and towards the end of the mortgage term you will be paying mostly capital.
If you opt for capital and interest payments, you should consider a term assurance policy so that should you die or be diagnosed with a critical illness during the mortgage term, the proceeds of the policy will repay the remainder of the loan. Most borrowers opt for this type of mortgage.
Interest-only payments
With this type of mortgage your monthly payments cover only the interest on your loan, so the amount you owe does not reduce during the term of the mortgage. After 25 years paying an interest only mortgage of £100,000, you would still owe £100,000.
Repayment of the capital sum is usually funded by an investment, for example, an ISA, a personal pension plan or a life assurance policy. You could also use an inheritance, regular over-payments (where the mortgage scheme allows) or selling the property and buying a cheaper house.
It is important to remember that if you are intending to use an investment to repay the capital sum, then values can go down as well as up and cannot be guaranteed on maturity. It may therefore, not be sufficient to pay off your mortgage at the end of the term. For this reason, it should be monitored by you from time to time to check the likely maturity value and, if necessary, the monthly premiums increased to boost the final sum payable.
On the other hand, if the investment performs well, it is also possible for its value to be greater than the amount needed to repay your mortgage, in which case you will receive the surplus as a cash lump sum. Another important point to bear in mind about interest only payments is that the investments designed to repay them are invariably long-term investments. This means that it is unwise, sometimes impossible, to take the benefits before the investment has run its full term.
Please remember that if you take out an interest only mortgage, it is your responsibility to ensure that there is an adequate vehicle in place which will repay the capital sum in full at the end of the mortgage term. Without a suitable repayment option in place, you run the risk of still owing the full mortgage debt at the end of the term, creating unexpected financial worries.
As these types of mortgage can be seen as higher risk they are often more difficult to obtain and are
typically aimed at those on higher incomes or with assets to support the mortgage.
Using an individual savings account (ISA)
A mortgage linked to an ISA is very similar to one that is linked to a pension plan.
You make monthly payments of interest to the lender and regular premiums to the ISA provider to build an investment designed to repay the loan at the end of the mortgage term and hopefully provide you with a tax-free lump sum as well.
You need to remember however, that the value of an ISA and any income from it, can fall as well as rise, and returns are not guaranteed. If you are considering an ISA option, you should also consider a term assurance policy for the full amount of the loan to ensure that, in the event of your death, the mortgage will be repaid.
Sale of Mortgaged Property
Some lenders will allow the sale of the mortgaged property as a stated way of repaying an interest only mortgage. *conditions may apply
The total cost of your mortgage
When budgeting for your new home, remember there are a number of costs you need to take into consideration in addition to the deposit, insurance premiums and the valuation fee. Some of these may be added onto your mortgage, though you should remember these will incur interest potentially for the whole of the mortgage and therefore cost more overall.
– Here’s a checklist of the potential costs:
– Stamp Duty
– Lender arrangement/completion fees
(for mortgages with special terms, e.g. fixed rate)
– Valuation fee
– Mortgage Consultant fee
– Solicitor’s fees
– Land Registry / Searches (disbursements)
– Life Assurance Policy
– Building & Contents Insurance
– Removal expenses
– White goods / other essential items
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IMPORTANT! YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP THE REPAYMENTS ON YOUR MORTGAGE.
Discovery Mortgage Services Limited is an Appointed Representative of JLM Mortgage Network Ltd, which is authorised and regulated by the Financial Conduct Authority. Registration numbers 832392 and 300629. Further details may be found by visiting www.fca.org.uk. Discovery Mortgage Services Limited registered in England No 11761503, registered address 1 Giles Road, Wendover, Buckinghamshire HP22 5HE
Our minimum fee is £595 however we will be paid a commission by the lenders and in many cases this will cover our minimum fee. This fee is chargeable on issue of a successful mortgage offer. If you do not proceed with a mortgage that has gone to offer, the £595 fee will be charged. Under some circumstances, for more complex cases, we may need to charge a £595 fee as well as receiving commission by the lender. For highly complex cases a maximum of 1% of the mortgage could be charged as a fee. Where fees are applicable you will be fully informed before an application is submitted. No fees are charged for an application that does not complete to a mortgage offer.