Mortgage guide - understanding the basics

When it comes to a mortgage it’s all about choice, and at C&G there are lots of different mortgages on offer as well as information and guidance to help you choose the one that suits you best.

Learning the language - mortgages

When you start looking into getting a mortgage it’s likely that you will come across the term: ‘Your home may be repossessed if you do not keep up repayments on your mortgage’. This is because a mortgage uses your property as security for a loan. Meaning that if you don’t keep up repayments on the loan, the lender can go to court for a possession order and force the sale of your home to repay the mortgage.

How does a mortgage work?

A mortgage has two parts:

• capital – the money that is borrowed 
• interest – the charge made by the lender until the loan is paid back.

How do I choose the right mortgage?

There are two initial decisions to make when you choose a mortgage – how you want to repay the loan and what type of mortgage suits you best. A mortgage expert can help to guide you through the process.  

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How do you want to repay the loan?

There are two main ways to borrow money for a home – an interest-only mortgage or a repayment mortgage.

• With an interest only mortgage, you only pay the interest on the amount you borrowed each month. This means that at the end of the mortgage term you will still owe the same amount you borrowed, so you’ll need to plan how to pay this off. 
• With a repayment mortgage, you pay off part of the capital each month, as well as the interest. This guarantees that your mortgage will be repaid in full at the end of the term, as long as you keep up the repayments.

Tips:

• With most fixed rate, capped or cashback mortgages, you pay early repayment charges if you pay off or switch your mortgage before the end of the offer.
• Watch out for extended early repayment charge periods as these may lock you into higher rates once your initial offer period has ended.

What type of mortgage suits you best?

You’ll find that every lender will offer a range of different mortgages - below is a list of the most common options:

Fixed-Rate – A fixed rate can help you budget, because the interest rate you pay - and your monthly payment - will be fixed until a set date. This means you will know exactly how much you will need to pay each month.

Tracker – the interest rate tracks the Bank of England base rate by a set percentage until a set date. Every time the base rate changes, so will the payments on your mortgage. It is slightly different from a standard variable rate, where the lender has the flexibility to choose the rate.

Variable – Most lenders have variable rates that they can move up and down at their discretion and onto which a mortgage will normally move at the end of any special deal, such as at the end of a fixed rate or a tracker.

There are three rates that could apply when a C&G mortgage deal ends.

All C&G mortgage deals applied for before 1 June 2010 will move onto the Standard Variable Mortgage Rate (SVMR) when the deal ends, although you could opt to switch to a new deal instead, subject to eligibility.

All mortgage deals applied for on or after 1 June 2010 will move onto either the Homeowner Variable Rate or, for buy-to-let mortgages, the Buy-to-Let Variable Rate when the deal ends, unless you decide switch to a new deal instead, subject to eligibility.

Capped – These mortgages guarantee that your interest rate – and your monthly payment – will never go above a set figure within the capped-rate period. Below that set figure, the rate will move up and down in line with the lender’s standard variable rate.

Discount – This type of mortgage gives you a discount of a set percentage off the lender’s standard variable rate until a set date. Your rate will reflect any changes in the lender’s standard variable rate, which changes at their discretion.

Cashback – These offers give you a cash lump sum when your mortgage completes, to spend as you wish. The mortgage is usually arranged at the lender’s standard variable rate.

Offset – These mortgages give you the chance to offset your savings, or those of your family and friends, against the mortgage balance. You don’t receive any interest on your savings, but do not pay interest on the equivalent amount of your mortgage loan.