Mortgage repayments options 

Each month, you pay back part of the mortgage capital and the monthly interest. At the outset, most of your monthly payment will be interest; later on, more of your monthly payment will be repaying the capital. At the end of your mortgage term, you will have paid off the entire loan plus the interest.

Here, each month you only pay the interest outstanding on the loan, meaning that the capital sum remains the same throughout the term of the mortgage. These mortgages are not as widely available as they once were. Lenders will now only lend money in this way if the borrower can clearly demonstrate how they propose to repay the capital sum at the end of the mortgage term.

As the name suggests, this type of mortgage is a combination of repayment and an interest-only mortgage as outlined above. With this type of mortgage, as with an interest-only mortgage, at the end of the mortgage term, some of the mortgage capital will still be owed and you will need to have a plan in place to repay it.

Lenders secure your mortgage against your property through a legal charge, so if you fall behind with payments and no other solution can be found, then the lender can repossess your home.

If you get into arrears or find it a strain to keep up with your monthly payments, you should seek advice as soon as possible. Your adviser may be able to find you a mortgage deal that is more affordable, perhaps with a lower interest rate or one that can be repaid over a longer period of time.

Mortgage Types 

The interest you pay remains the same for a set period of time, so your mortgage repayments will remain the same, even if rates rise.

As the name suggests, the rate applied can change at any time, meaning that your monthly repayments could do so too. 

The interest rate used here is the lender’s default rate, their standard variable rate (SVR). This can change at any time, meaning that your monthly repayments could go up and down.

A type of variable rate mortgage. Here the interest rate usually tracks the Bank of England base rate at a set margin above or below it, for the period of the deal.

A type of variable rate mortgage where the interest rate is set at a discount below the lender’s SVR for a fixed period of time

The rate you will be charged moves in line with the lender’s SVR, but the cap means that the rate won’t move above a certain level.

Fees and costs associated with your mortgage

Based on the purchase price of your property.

This could be anywhere between £150 and £1,500 depending on the value of your purchase.

This charge is for the mortgage product you are taking out and can vary from nil to over £2,000.

If this is charged by the lender it is normally payable on application and is non-refundable. It’s a way for lenders to cover expenses for cases that cancel during the application process.

This administration fee is charged by some lenders for the running of your mortgage account and is often deferred until full redemption of the mortgage.

As the name suggests, this is a charge made to cover a lender’s costs if you repay all or part of your mortgage before the end of your mortgage deal.

Other Fees

Typically around £500 to £1,500. They will be able to provide an upfront estimate of what their fees are likely to be.

These can be around £80 to £250.

These can be around £30 – £60.

These should be itemised in the quote provided by your legal adviser.

These can be around £50 – £80.

Depending on the type you choose, you could be paying anything from £250 for a basic report to around £1,000+ for a more detailed structural survey. Your surveyor will discuss your requirements with you.

If you’re selling a property and you use an estate agent, you will typically be charged a fee usually equating to 1% – 3% of the sale price, plus VAT. You may need to use a removal firm. They will provide an estimate of the cost based on the amount of furniture and possessions that will need to be transported and the distance you’ll be moving.

Insurance FAQ’s

What it does – Mortgage payment protection policies are designed to cover the cost of your mortgage payments if you’re sick, have an accident or become unemployed and can’t work.

How it works – Generally, the policy will start paying out either 31 or 60 days after you are unable to work. Most policies will pay out for a maximum of one year.

What you need to know – With statutory sick pay set at just £92.05 (applicable from 6th April 2017) and only payable for up to 28 weeks, many families would struggle to meet their mortgage payments if a disaster were to strike. The amount payable under the policy is usually around £1,500 to £2,000. So, if you have a large mortgage, you will need to consider how you would cover any shortfall.

You can choose the date at which the policy would pay out in the event of a claim. This can range from a month to up to a year.

Policies that payout sooner will have higher premiums.*

What it does – This type of policy pays a monthly income taxfree if you are unable to work due to an illness or injury.

How it works – The monthly income under the policy will be between 50 and 70 per cent of your salary and will be paid until you are fit enough to return to work or reach retirement age.

What you need to know – State benefits aren’t generous and only a few employers will continue to support their staff through a long illness, so income protection policies can help families through difficult financial times.

You can choose the date at which the policy would pay out in the event of a claim. This can range from a month to up to a year.

Policies that payout sooner will have higher premiums.*

What it does – Critical illness cover pays out a tax-free lump sum if you are diagnosed with a major illness, including cancer and heart disease. Actual illnesses covered in a policy may vary between providers.

How it works – Many insurers will make a part payment on an early-stage diagnosis of a condition specified in the policy, the percentage will vary from company to company.

What you need to know – Many people buy a combined life and critical illness policy, and it makes sense to do so. In this case, a payment would be made on either diagnosis of critical illness as defined in the policy, or death, whichever is the sooner. If the cover is combined in this way, the policy premium is usually cheaper than it would be for separate policies, as there is only ever one lump sum paid out by the insurance company.*

What it does – Family income benefit policies work in a similar way to ordinary life cover, but instead of a lump sum, the policy pays out a regular income if you die.

How it works – A typical policy might be taken out by the parents of young children, so that if one parent were to die during the term of the policy, then an income would be paid out for a predetermined period of time. So, if you had a 20-year policy and were to die five years into it, then the policy would pay out a regular income for the remaining 15 years.

What you need to know – Family income benefit insurance is a simple way to provide your family with an ongoing income rather than a lump sum if you were to die. Critical illness can also be added that would provide a payout if one of the parents were to be diagnosed with a serious illness.*

What it does – This policy provides cover so that if you are unable to work because you’re injured or sick, or through no fault of your own, you have lost your job.

How it works – In the event of a claim, you will receive a predetermined percentage of your monthly income, usually for a period of up to 12 months. Payments are made after a waiting period of at least a month. If you choose a longer waiting period, your premiums are likely to be lower.

What you need to know – Accident, sickness and unemployment cover differs from mortgage payment protection which is designed specifically to cover your repayments on a specific debt such as your mortgage. It differs from income protection insurance in that it includes unemployment cover.*

What it does – Private medical insurance means that you can get access to diagnosis and treatment faster and therefore are more likely to recover quicker. Policies cover the costs of private medical care including seeing consultants and specialists, treatment, surgery, private hospital accommodation and nursing costs.

How it works – You will need to decide what level of cover you want for yourself and your family, as this will determine what your premiums will cost. You can choose the level of excess, that’s the amount of any claim you are happy to pay yourself. Paying a higher excess will generally bring the cost of premiums down.*

What you need to know – There are conditions which insurers won’t pay out for, including cosmetic surgery and alcohol or drug-related illnesses. You may find illnesses that you’ve suffered from in the past are excluded from cover as they are deemed to be ‘pre-existing conditions’.

When it comes to planning for the future, your adviser will be able to explain how taking the simple step of putting your policy into a trust* could, in certain circumstances, make good sense for you and your family.

If you thought you had to be incredibly rich to need to set up a trust, you’ll be pleased to know that this simple formality is now widely used to help pass money on swiftly and efficiently to loved ones on death. A trust is a legal arrangement that helps ensure that the payout from your life policy goes to whoever you choose to receive it, meaning you can control where your money goes.

How trusts work in practice

Under normal circumstances, the proceeds from a life policy form part of your estate on your death and could, therefore, be subject to Inheritance Tax if the amount you leave, referred to as your estate, exceeds the threshold at which Inheritance Tax becomes payable.

By doing what’s called ‘writing the policy in trust’, the payout from the policy can be made directly to your beneficiaries, for instance, your wife or your children, and doesn’t form part of your estate and therefore isn’t subject to Inheritance Tax.

In addition, the payment wouldn’t have to wait until the grant of probate, the legal document required to administer your estate, has been granted. Obtaining probate can be a lengthy and time-consuming process. However, if a policy is written in trust, there is no need to wait for probate as the proceeds can be paid out once a death certificate has been obtained.

Creating a trust

Most insurance companies will offer this option at no extra cost when you take out a policy. Your adviser will explain the process and help you fill out the necessary documentation to set up this simple but effective arrangement.

There is a certain amount of jargon used to refer to trusts, but don’t worry, as your adviser will be able to explain the technicalities in a down-to-earth way so the details are clear.

* 1. Not all protection policies can be written in trust.

2. If the policy includes Critical Illness, writing the policy can be more complex. Your adviser will be able to help with this.

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