Mortgages

The following is general mortgage information that should be provided to you when you arrange a mortgage or remortgage.

Explanation of Repayment Types

Capital and Interest
This means that each monthly payment that you make to the lender will contain an element of capital in addition to the interest payable on the loan. The proportion of each will change throughout the period of the loan. The proportion of capital increases with each monthly payment provided that the payments due are met in full and on time.

Interest Only
As the name suggests, you pay only the interest each month. The actual amount borrowed doesn't reduce during the life of the mortgage and the full amount of the loan remains outstanding to be repaid at the end of the mortgage term. Your monthly payments to the lender are therefore less than with a repayment mortgage, but it is very important to ensure that you have the money available to repay the loan at the end of the term.

To provide money to repay the capital borrowed, it is important to take out some kind of investment plan. If you choose the interest only option, you will need to consider an appropriate investment vehicle for your circumstance, for example an endowment policy, ISA or Pension Plan.

It is your responsibility to maintain the monthly premiums to ensure continuity of the repayment vehicle and to carry out regular reviews to ensure that the performance is sufficient to repay the loan upon maturity.

Explanation of Types of Interest Rates

Standard Variable Rate
The lenders have the right to change the rate at their discretion. In practice rates tend to move in relation to funding costs, competition in the market and changes in the Bank of England base rate. As rates rise and fall so will your mortgage payments.

Discounted Rate
The rate remains variable, as above. However, as an incentive a lender will offer a discount off the standard variable rate for an agreed period. After the discounted period, the rate charged usually reverts to the lenders standard variable rate.

Fixed Rate
The lender will fix the rate of your mortgage for an agreed period of time. You will know exactly how much you will pay the lender each month during the fixed period, which will help your budgeting. After the fixed period, the rate charged usually reverts to the lenders standard variable rate.

Capped Rate
The lender will cap the rate for an agreed period of time. If the lenders standard variable rate goes above this capped figure you will pay no more than the agreed cap. If the rate drops below your capped rate you will pay the reduced amount, until either the rate rises again or the agreed period ends. This gives you the security of a fixed rate, but with the added advantage that you could pay less if rates fall. After the capped period, the rate charged usually reverts to the lenders standard variable rate.

Tracker Rate
This method of repayment is directly linked to changes in the Bank of England Base Rate. Tracker rates are set at a certain percentage above or below Bank of England base rate, and this percentage difference is fixed - e.g. if the Bank of England base rate rises or falls by 0.25%, your Tracker Mortgage rises or falls by 0.25% also.

Libor Rate
London Inter Bank Offered Rate. This is essentially the rate used by banks to tend to one another and is a key indicator of the short-term price of money. The rate is reviewed periodically and therefore your mortgage payments will change accordingly. When the rate increases so will your mortgage payments. When the rate decreases your payments will reduce also.

Flexible Mortgage
There are various types of flexible mortgages available and they all give you increased flexibility when compared to traditional types of mortgages.

Typically, a flexible mortgage may include any or all of the following features:

The ability to make overpayments (without penalty) subject to the lender agreed limits
The ability to underpay your mortgage (within certain limits)
The option to take payment holidays
A facility to borrow more money within agreed limits, for lump sum expenditure (e.g. home improvements)
Current account with chequebook and an agreed overdraft facility
Credit card with an agreed spending limit
Debit Card

A flexible mortgage can be set up on a fixed, capped, discounted, variable or base rate tracker basis, when it comes to the interest rate that is charged to the mortgage.

Early Redemption Penalties
The lender may apply penalties if you repay part or all of the mortgage within any redemption period. Details of any ERP will be shown in the illustration supplied to you by Abacus.

Mortgage Transferability
Some mortgage products may be transferred to other properties subject to survey, and also at the agreement of the lenders' underwriters at the time in relation to your status and personal circumstances at that time.

Re-Mortgage
Income Support regulations were changed radically 1st October 1995, therefore if your original mortgage was taken prior to 1st October 1995 and you now wish to re-mortgage your home, any potential levels of benefits could be severely reduced.

Mutual Lenders and Possible Flotation
If your lender is a mutual organisation, you should check whether or not you will be entitled to membership rights and whether or not you will be entitled to any windfall payments if they decide to convert to a company quoted on the Stock Exchange. Your lender will confirm your entitlement to company membership rights. In the event of mortgage default, you may lose your entitlement to any future windfall payment.

Associated Insurances

Building Insurance
Sometimes it is a condition of the mortgage that the building insurance is taken out with the lender. It is your responsibility to ensure the payments are maintained to ensure continuity of cover. The sum insured must be based upon an estimate of current rebuilding costs and will be increased in line with the House Rebuilding Cost Index. The cover must be in force at exchange of contracts in England & Wales or from acceptance of missives in Scotland .

If you wish to arrange your own insurance the lender may impose a charge for administration of the insurance details.

Home Contents Insurance
Abacus recommend that you arrange an adequate amount of contents cover to offer protection to any fixtures, fittings and all your personal possessions. It is your responsibility to ensure you have adequate insurance cover, and the premiums are maintained to offer continuity of cover.

Mortgage Repayment Protection
If you fall behind with your mortgage payments due to accident, sickness or unemployment and you are unable to bring your account up to date, you could eventually lose your home. State benefits have been greatly reduced in recent years. If you do not have other means to repay the mortgage, Abacus recommend you take out an insurance to offer protection in these circumstances.

High Percentage Loan Insurance
If your mortgage represents a high percentage of the purchase price, or valuation of your property and your lender has indicated that you will have to pay a high percentage lending fee, or pays it on your behalf, they may use some or all of this fee to obtain mortgage indemnity insurance to act as extra security for their sole benefit. If this is the case, your lender will give you a written explanation, stating that::

Such insurance is not designed to cover you, the homeowner, and will not protect you if your property is subsequently taken into possession and sold for less than the amount you owe.
You will remain liable to pay all sums owing, including arrears, interest and the lenders legal fees. Interest will continue to mount up as long as the mortgage is outstanding.
The High Percentage Loan Insurer has the right to sue you for the amount paid to the lender to cover any shortfall upon sale following a repossession.

Other Fees and Charges

Valuation Fee
Before a lender will offer you a mortgage, they will require a qualified valuer to inspect the property and submit a valuation report. This is to ensure that the property is suitable security for the loan requested. The report does not necessarily give you an indication as to the condition of the property. If the property is new and building not completed, you may have to pay an additional fee for a second valuation when the building is completed. This report is for the lender's purposes and you may not receive a copy.

Homebuyers Report
A homebuyer's report is more detailed, it is limited in focus and there is little comeback in the event of serious problems encountered later. It is likely that defects will be identified, giving you the opportunity to obtain any necessary reports. It is highly recommended that the valuation be arranged in conjunction with the lender to prevent duplicate valuation costs.

Full Structural Valuation
A full structural survey is a thorough and complete inspection of the property carried out by a qualified professional surveyor. It is expensive, but nevertheless worthwhile for many mortgage applications. It is highly recommended that the valuation be arranged in conjunction with the lender to prevent duplicate valuation costs.

Arrangement/Reservation or Booking Fee
Depending on the mortgage you obtain, some lenders may charge arrangement, reservation or booking fees.

Legal Matters
Your solicitor or conveyancer will make a charge for sale, purchase and remortgage of a property. Please refer to your solicitor for further details.

Disbursements will also become payable to cover the cost of Stamp Duty and various searches the solicitor or conveyancer must complete.

Joint Applications
Legal advice is required as to whether the mortgage should be written on a joint tenancy or tenancy in common basis. Please refer to your solicitor.

Joint and Several Liability
Where two or more borrowers take out a mortgage, it is important to realise that all parties are under joint and several obligations to adhere to the mortgage covenants when they commit to the loan.

For example, if two people take out a joint mortgage and one person refuses to contribute to the payments (due to separation, divorce, etc) the remaining person is liable to pay the whole of the mortgage payment and vice versa.

The lender deems that each party to the loan is jointly and severally liable to make the required payments.

Property Value Movements
Property values and prices fluctuate according to market conditions and hence the value of your property may go down as well as up. In future, this could mean that your mortgage loan exceeds the property's current market value, i.e. you could be in a 'negative equity' situation.

Disclosure of Personal Details
Your lender may undertake credit references upon receipt of your mortgage application. They may also supply information to Credit Reference Agencies regarding the way that your mortgage account is managed.

Data Protection Act
We will treat all your personal information as private and confidential (even when you are no longer a customer) except where disclosure is made at your request or with your consent in relation to arranging your mortgage. We keep records of all business transactions for at least 6 years. You have a right of access under the Data Protection Act 1998 to your personal records whether held manually or electronically.

The information you provide may be disclosed to third parties (e.g. credit reference agencies and product providers) for the purpose of processing your application or to another firm upon the sale of all or part of the business.

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