When it comes to mortgages, everyone’s different. You may know that you want lower repayments in the early years, the certainty of a fixed rate, or a greater level of flexibility. Alternatively you may simply be weighing up your options for now. This guide explains some of the key things to consider:
1. Paying your mortgage back
2. Types of mortgage products
3. Special Mortgage packages
4. Protect your investment
5. Early repayment charges
6. Standard Variable Mortgage Rate
1. Paying your mortgage back
Despite all the different types of mortgage schemes and deals available, there are still just two basic ways of repaying your mortgage:
- Repayment mortgage (capital and interest)
- Interest only mortgage
Repayment: pay back everything, including interest
With this option you’re guaranteed to pay off all of your mortgage by the end of the term, provided you don’t miss any payments. The amount that you repay each month is made up of capital and interest calculated to repay all of your mortgage by the end of the term.
Interest only: pay back just the mortgage interest
This option means your payments cover just the interest on your mortgage. You’ll need to make sure you have a way to pay off the capital element of your mortgage on or before the end of the mortgage term – such as an investment. Remember, though, to include the cost of any investment when you’re working out what you can afford to pay each month.
You can choose repayment, interest only or a combination of the two. But whichever option you choose, your mortgage will need to be cleared by the end of the term.
For most people it makes sense to arrange some kind of mortgage payment protection insurance to cover your mortgage payments if you were unable to work due to an accident, sickness or unemployment.
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2. Types of mortgage products
Fixed Rate mortgages
The rate of interest on your mortgage is fixed for a set period of time regardless of whether the Bank of England Base Rate or the lender’s Standard Variable Rate changes.
Some mortgages have rates that change over time – and repayments that rise as well as fall. This can make budgeting difficult, but with a fixed rate mortgage you know exactly where you stand. During your fixed rate period you will not be affected by any interest rate rises, giving you the peace of mind in knowing what you need to budget for.
Remember, if interest rates fall, you may miss out on a reduction in your monthly payments whilst you are on a fixed rate mortgage. At the end of the fixed rate period, your interest rate will change to a variable rate (usually our Standard Variable Rate), but we may be able to offer you another fixed rate at that time.
An Early Repayment Charge may apply if the mortgage is repaid during the benefit period. Please see our Early Repayment Charge.
View our fixed rate mortgage range
Tracker mortgages
Your mortgage interest rate is linked to the Bank of England Base Rate for a set period. So if the base rate goes up, the interest you pay will increase, which means your mortgage payments will rise. But if the base rate goes down, the interest you pay will fall and so will your mortgage payments.
An Early Repayment Charge may apply if the mortgage is repaid during the initial set period. Please see our Early Repayment Charge.
View our tracker mortgage range
Flexible mortgages
This type of mortgage is designed to accommodate your changing financial needs. You can offset your savings, overpay, underpay or even take payment holidays. You can also make penalty-free lump sum repayments. The interest you pay is linked to the Bank of England Base Rate for the life of your mortgage.
View our flexible mortgage range
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3. Special Mortgage packages
When moving home or remortgaging there are lots of things to think about – and the costs can soon add up. Our special solutions could help lighten the load:
Homebuyer Solution
- Available to customers moving home and first time buyers
- Provides a free basic property valuation (up to a property value £2.5m)
- Plus £250 cashback on completion to help with legal costs
Remortgage Solution
- Free basic property valuation (up to a property value of £2.5m)
- Includes arrangement and payment for basic legal work involved in transferring the mortgage
Benefits such as cashback or paid legal fees are repayable if you pay off your mortgage within the first two years.
What you need to pay back
- Remortgage Solution – You will need to repay £250 cashback or a maximum of £200 for the remortgage legal work
- Homebuyer Solution – You will need to repay the £250 cashback
- Premier Homebuyer Solution – You will need to repay a maximum of £1,200 for the sale and purchase legal work
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4. Protect your investment
Don’t forget to make sure you, and your home, are adequately insured. We can arrange insurance for your Buildings & Contents and arrange Life & Critical illness and Mortgage Payment Protection Insurance to help protect you should you be unable to work due to accident, sickness, unemployment through no fault of your own or if you leave work to become a carer for an immediate family member. Speak to one of our mortgage advisors for a quote.
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5. Early Repayment Charges
On some products if you choose to repay your mortgage within the introductory incentive deal period, or you make a repayment of more than 10% of your mortgage balance, you will need to pay an early repayment charge (ERC). These charges differ by product type and term.
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Fixed Rate products
We calculate our ERCs on our Fixed Rate products as a percentage of the outstanding mortgage balance at the time of repaying the mortgage. Current charges are as follows:
| Percentage ERC |
3% |
3% |
4% |
5% |
6% |
7% |
Variable Rate Tracker products
We calculate our ERCs on our Variable Rate Tracker products as a percentage of the outstanding mortgage balance at the time of repaying the mortgage. Current charges are as follows:
| Percentage ERC |
2% |
2% |
3% |
4% |
5% |
Benefit packages and solutions
If your mortgage product has a benefit package, such as Homebuyer Solution, Remortgage Solution, or Premier Homebuyer Solution, you will also be charged a fixed ERC amount on top of your percentage ERC amount if you choose to repay your mortgage before the end date on your benefit package. The additional fixed amount payable varies by benefit package as follows:
- Remortgage Solution – You will need to repay £250 cashback or a maximum of £200 for the remortgage legal work
- Homebuyer Solution – You will need to repay the £250 cashback
- Premier Homebuyer Solution – You will need to repay a maximum of £1,200 for the sale and purchase legal work
Details of the ERC payable will also be shown on your mortgage quote Key Facts Illustration if you choose to apply.
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6. Standard Variable Mortgage Rate
If you are currently on a Fixed Rate or Tracker mortgage, in most cases, when your deal ends your interest rate will switch to the Standard Variable Mortgage Rate. This could be higher or lower than the rate you have been paying and may vary over the remaining term of your mortgage.
If you have an Alliance & Leicester mortgage the Standard Variable Mortgage Rate is currently 4.99%.
If you have an Abbey mortgage the Standard Variable Mortgage Rate is currently 4.24%.
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