Mortgages Guide | Mortgage Help Product Information

TheMoveChannel.com | Other Mortgage Product Features

Introduction

Aside from the set-up fees, redemption penalties and other charges that are described on later pages, there are a whole host of other features that may be particular to certain mortgages or product ranges. Some of these are described briefly below:

Loan to Value (LTV)

Some mortgages may only be on offer if you are borrowing a certain proportion of the value of your house. There is often a maximum loan to value, above which you will have to choose a different product, or at least pay a MIG fee.

Many lenders offer more favourable deals to customers who are contributing a sizeable deposit themselves. For instance, there may be one rate of interest if you are borrowing less than 80% of the property value and a higher rate if you are borrowing more than that.

Incidence of interest calculation

Charging interest on the outstanding balance of your loan at the end of each day means you reap immediate benefits of any repayments you make. This is a common feature of flexible mortgages, but is not restricted solely to them.

When interest is calculated annually, repayments are not updated to include the reduction in capital that arises from the payments you make throughout the year and any lump sum deposits that you pay into your mortgage account. As long as you are making payments on time, the more frequently interest is calculated the better for you.

Review of rate

The interest rate you are charged can be reviewed either annually or on a monthly basis. This feature does not affect fixed rate mortgages during the fixed period, or capped rate products when the prevailing rate of interest is above the cap level.

With an annual review, one change is made to your rate on a fixed date each year to take into account changes in the variable rate. This provides more stability, as you know your repayments are not going to change during that time. You can avoid the effects of fluctuations in the interest rate but you can also suffer a sudden repayment jump on the review of rate date if there have been several rate rises during the course of the year. With an annual review, you also miss out if rates fall during the year, as your repayments will stay the same, as opposed to being lowered due to the rate change.

A monthly review means that the rate you pay is amended on a set date of each month, usually following a change in the Bank of England base rate. This means that you see more fluctuations in your repayments and feel a near-immediate cost or benefit should the rates rise or fall.

Incentives

A lot of mortgages come with enticing incentives, which are usually financial or product related. The lender may offer a discount or fee-free period on buildings insurance, accident and sickness insurance, redundancy insurance, or payment protection insurance. This is often done to encourage you to take up the policy, which you are then fairly likely to keep in the longer term. Other common incentives include a free valuation and money towards solicitor's fees.

Term of the mortgage

It is worth looking at the small print to find out the minimum and maximum terms of the mortgage. The range of acceptable term lengths can often range from 5 right up to 40 years. It is also worth knowing whether there is any built-in flexibility of the term - i.e. whether you are likely to be able to extend or reduce it in the future. While a longer term will mean a greater total amount of interest paid, it will also mean lower monthly repayments, and vice versa.

Repayment method

You will usually have a choice of repayment method but this won't always be the same choice. Make sure that your favoured repayment vehicle is acceptable to the lender. Portability Find out whether you can take the mortgage with you if you move during the introductory offer period and beyond. This saves you having to pay off the loan and take out a new one.

Further advances

Some lenders will allow you to release further funds once you have repaid a portion of the capital. Four things to find out are:

  • Whether this is possible.
  • If it is possible, whether it will be available at the same rate of interest as your original loan if you are still in the introductory period.
  • Whether the extra borrowing can be added to the existing mortgage.
  • If you can avoid extending the term of your mortgage to repay the additional amount (or whether you can extend it if you would prefer).