Finding the best mortgage for you

You'll find plenty of interesting information about mortgages here, and you can use the calculators on the Online Resources page to assist in your mortgage research, but please note that these calculators are supplied for general guidance only.

Mortgages tailored to your needs

Your mortgage is probably the largest financial transaction and commitment you are likely to undertake. We recommend you seek mortgage advice which is individually tailored to your needs and requirements.

Gone are the days when a borrower was grateful to the lender for providing them with a mortgage facility. In today's marketplace, lenders are in competition with each other for your valuable business. They are therefore willing to offer incentives to entice you. But beware, you don't want them to snare you!

There are so many types of mortgage available that it is easy to become confused, possibly opting for the product offering the lowest headline rate of interest. But when booking and arrangement fees, conditional insurances, higher lending charges, lock-ins and early repayment charge are taken into account, the products may not be as attractive as you might have first thought.

Ways to repay your mortgage

There are various ways to repay your mortgage. Here is a brief outline of the more popular repayment methods, and their advantages and disadvantages.

Repayment mortgage

How does it work?

You borrow a lump sum over a fixed period of time (usually 25 years, but it can be less). You pay the interest and some of the capital on a monthly basis to the lender.

ADVANTAGES: The only way you can be 100% certain the loan will be repaid (provided you keep up with the repayments.)

DISADVANTAGES:Only a small amount of capital is paid off in the early years.

Interest-only mortgage

How does it work?

Your monthly payments represent only the interest due to the lender, and do not include repayment of capital. Your total loan must be repaid at the end of the mortgage term. You may therefore need to arrange additional investments which will generate sufficient capital to repay the loan.

ADVANTAGES: You can choose from a variety of investments, some of which have tax advantages. Should you move or arrange a remortgage, your investment can usually be reallocated to the new mortgage.

DISADVANTAGES: Unlike a repayment mortgage, the amount of debt outstanding does not reduce over time, and there is no guarantee that the investments chosen will grow sufficiently to repay your loan.

One type of interest-only mortgage is:

INDIVIDUAL SAVINGS ACCOUNT (ISA)

How does it work?

You make a monthly payment to the lender to repay the interest on the amount borrowed, and start to invest into an ISA plan. The capital in the plan builds up over the term of the mortgage to repay the outstanding capital. ISAs allow you to invest in cash and stocks and shares, and work in much the same way as the endowment method.

ADVANTAGES: Your money could grow faster within an ISA fund than an endowment because of tax advantages and because ISAs invest most of your money into stocks and shares. This means they can grow very quickly if the stock market performs well. On the other hand, if there's a stock market slump, there's a risk that you may not be able to pay off your loan at the end of its term. They are more flexible than endowments and can work out cheaper.

DISADVANTAGES: Risk - Stockmarket fluctuations could adversely affect the value of the plan, as your capital is not guaranteed. Therefore, there is no certainty that you will be able to repay the mortgage. Also, you need to arrange separate life and Critical Illness cover, if appropriate. There is no guarantee ISAs will continue indefinitely. ISA contributions are currently restricted to a maximum of £7,200 in any tax year (£10,200 per year for people aged 50 or over). From 6 April 2010, the ISA limit will increase to £10,200 per year for all ISA investors.

With all these ways to repay your mortgage, then (with the exception of the repayment method), regular reviews should be carried out to ensure you have sufficient funds to repay your mortgage loan at maturity.