Mortgages Guide | Mortgage Help Product Information

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Standing Mortgage

A standing mortgage is where no arrangements are made at the outset for the repayment of the loan. Obviously, at the end of the term the borrower still has to repay the loan. Lenders are not giving out loan finance indefinitely. If a specific investment vehicle has not been arranged to provide funds for this purpose, the borrower will have to repay the loan by some other means. If the capital is not repaid, the lender can repossess the property and sell it to recover as much of the debt as possible.

For a variety of reasons, mortgage lenders can be relatively unconcerned about the borrower's ability to repay the loan. This can be the case for:

  • People with a sizeable inheritance, trust fund or extensive other assets.
  • Pensioners who have bought a new home. They may require a small mortgage as much of their other assets are locked up, but there is enough excess in their estate to more than cover the loan once they die and the property is sold.
  • Buy to let investors. Some property speculators aim purely for capital growth in the value of the property. The mortgage loan would be repaid on the sale of the property. The smaller monthly repayments that arise from the use of an interest-only mortgage mean it is easier to ensure that rental income covers interest charges. Not all lenders will allow the use of a standing mortgage in this way. It can be quite a risky strategy. As the well-known saying goes - the value of all investments can go down as well as up - a large drop in the price of houses could result in the borrower not being able to repay the loan.

There are three other types of mortgage that can occasionally be found in the UK:

Low Start Mortgages

This is like a repayment mortgage, but with a difference. In the introductory period, only interest is paid back to the lender and not any of the capital outstanding. After this period, the repayments start in earnest. The total amount of interest and repayments over the life of the year are higher than with a normal repayment mortgage, but this sacrifice can be worth it if you need to severely restrict your outgoings during the low start period.

Deferred Interest Mortgages

Interest is not paid during the discount period. When the discount period is over, the accumulated interest is added to the original loan. Some lenders add this interest to the total of your loan to give a new loan figure and new interest payments. Others calculate your interest payments on the original loan as normal and then spread the repayment of the deferred interest over a set period of time. The latter method is better for you, as adding the deferred interest to the loan means you end up paying interest on the deferred interest!

Equity Linked Mortgages

Similar to the method used by housing associations except it is the lender who takes a stake directly and not the housing association. The lender takes ownership of a stake in the equity of the property. This means that they lend you less than the full amount that is required to buy the home. Interest is only charged on the amount that they lend you and not on the full value of the property. When you sell the property, the lender receives payment in proportion to the amount of equity that they own, and therefore benefits from any increase in the price of the property.