The Complete Mortgage Guide - Part 1

There are many different types of mortgages available to suit people from all types of financial backgrounds: Tracker Mortgages, Buy To Let Mortgages, CCJ Mortgages, Current Account Mortgages and many more. The key to finding the right mortgage for YOU is to fully understand your financial situation and be honest with yourself about what type of property you can and cannot afford to buy. Once you've settled on a load amount, look for a mortgage product that best suits your needs. In a blink of an eye, your mortgage rate could rise or fall depending on the mortgage you choose and the state of the financial market, so you need to make sure that your able to ride the storm financially should things change for the worse.

€In general, most mortgages are long-term loans which can be paid back over a set period of time. However, not all mortgages are fixed, which means the borrower has the chance to pay the loan back earlier if desired. This is the case with flexible mortgages, where the borrower may be able to take payment holidays and pay the loan back earlier or later than planned.

We'll go into much more detail about each mortgage type later in this article series. For the moment, we'll start with a brief overview of
the most popular mortgage products you may be offered by your Bank or Independent Financial Advisor:

Mortgages explained (Quick guide)

Capital Repayment - this method involves repaying the interest and capital on your mortgage at the same time over a set period

Interest-Only - the capital is not repaid until the very end of the mortgage period. Unlike a capital repayment mortgage where you pay back both the capital and interest in regular monthly payments, the Interest-Only mortgage means you may pay a lot less for a set period of time. However, at the end of your mortgage term, you still have to pay back the sum initially borrowed

Endowment - this is an Interest-Only mortgage where the capital is paid at the end of the mortgage period by the endowment policy or policies

Pension mortgage - an Interest-Only mortgage which is funded by a personal pension scheme. As a tax-free lump sum of cash, a personal pension can be used for the pension mortgage at the time of retirement

Investment Backed - this method of repayment is funded by an investment plan such as an ISA or PEP. This is another Interest-Only mortgage where the capital is repaid at the end of the mortgage period. [It's advisable that PEP investment plans are not currently available to new investors]

Buy-to-Let - a Semi-Commercial mortgage for those who let residential property to tenants

Right-to-Buy - this mortgage can be arranged for council or housing association tenants under the €Right-to-Buy' home legislation

Let and Buy - buyers can get a mortgage on a new property whilst letting an existing owned property

Flexible mortgage - gives home owners the chance to take payment holidays, allows for underpayment and also for additional capital payments without owners being penalised

Deferred Interest - in the first years of the mortgage, this system is attractive to those who want to maximise the loan and minimise the repayments. However, the interest must be paid at a later date

Adverse Credit - suitable for borrowers with bad credit history or related credit problems

Self-Cert - borrowers are eligible for this mortgage by producing a certified statement of earnings to prove they can afford the property

Non-Status - the applicant's income is not taken into account for this method, although the borrower must state that they are financially able to make the repayments

Offset - borrowers can offset a credit balance against the debt pertaining to the mortgage. By doing this the interest can be reduced

Foreign Currency - capital and interest are reduced by transferring debt to a foreign currency or currencies. This is possible through the difference in exchange rates

Mortgage fees

Valuation fee - given to a chartered surveyor when the property has been evaluated and shown to meet the mortgage rate

Product fee - the asking price attached to a particular mortgage deal which is required from the borrower

Early repayment charge - charge (previously the redemption penalty tie-in) referring to a rate which is less than the typical market borrowing price. The borrower may incur a penalty if the loan is repaid within the incentive period

Mortgage Brokers - What does a Mortgage Broker do?

Mortgage Brokers work on behalf of clients by sourcing relevant mortgage loans. The type of service a Mortgage Broker may offer depends on their jurisdiction. UK Mortgage Brokers are regulated by a governing body and can be held responsible for their recommendations on property finance and related advice. However, some brokers may limit their service to recommending appropriate lenders without giving any guidance at all.

Typical Tasks

• Mortgage Brokers will generally assess the borrower in terms of their credit history and ability to afford mortgage payments. These assessments are usually based on a credit report and evidence of the client's income
• They will assess the market in order to choose the most suitable mortgage for their client and then make recommendations


• Many mortgage brokers will explain the legal paperwork and related property finance


• They will apply for a lenders agreement


• They will ask clients to provide all the necessary documentation such as payslips and bank statements


• Mortgage Brokers will complete a lender's application form, as well as submitting all the paperwork and evidence to the lender

In addition, there are three important questions to ask.

1. Are you €whole of the market'?
If a Mortgage Broker is €whole of market' it means that you will be offered a mortgage which has been chosen from a wide field. In this way, you should be able to find the best deal for you which is available on the market. This is an important question to ask as some mortgage brokers only deal with a small selection of lenders because it is cheaper for them to do so. Our advice would be to choose a Mortgage Broker who has access to the 'whole of the market' as they will, more than likely, be in a much better position to find you the best mortgage to suit your individual needs.
2. Are you also an Independent Financial Advisor?
You may find that you need the skills of an Independent Financial Advisor if you took out an Endowment mortgage in the 1980's or 1990's. This type of €Interest-Only' mortgage which is paid into an Endowment is designed to pay off the mortgage debt. However, many Endowment mortgages fail to deliver as the investment is not adequate to repay the mortgage, and a large number of borrowers are not able to make up the shortfall. If you need property finance advice on dealing with a failing Endowment mortgage, you'll find that a Mortgage Broker who is qualified as an Independent Financial Advisor is a worthwhile investment.
3. Do you charge on a commission basis?
Mortgage Brokers typically gain income from two sources: commission and fees.

Commission - many lenders pay Mortgage Brokers commission known as a €procuration fee'. This figure is generally around 0.25% to 0.5% of the mortgage's value and can extend to 1% depending on whether you have a poor credit rating, i.e. for a mortgage of 150,000, a Mortgage Broker would earn around 375 to 1,500.