Features

Some of the best fixed mortgages have the option to port your mortgage to another property. This portability option is great if you want to move home whilst you are in a redemption penalty period. For example, if you took out one of the best 5 year fixed mortgages but that 5 year fixed rate did not have the portability option and you decided to move home after 3 years then you would have to pay an early redemption penalty (if applicable).

The True Cost or otherwise known as the Overall Cost of Comparison allows you to compare the best fixed mortgages on a level playing field. The figure quoted will be the total payable over a given period, this figure tends to be calculated over the lifetime of the mortgage or for the duration of the fixed rate.

You will often see the abbreviation SVR when looking at your options and it is important to understand its meaning. The SVR is the Standard Variable Rate and this is the rate you will normally revert to after your fixed mortgage ends. The figure will be quoted as a % and will be proportionally higher than the initial pay rate unless the bank of England interest rates were to fall after you take out your fixed mortgage.

Whilst this type of mortgage isn’t a cash back mortgage you may well find that you will be given an amount of money called cash back. The amount of the cash is normally payable when the new mortgage is arranged (completes) and can be higher on remortgages to cover the associated costs of remortgaging (solicitors fees and valuation fees).

We touched on income multiples as the mortgage companies way of calculating affordability. But in today’s property market it is now common for the lender to calculate affordability on, surprisingly, affordability! On this basis the company will look at the homeowners financial commitments (outgoings) and make a judgement on whether the homeowner could meet the proposed monthly mortgage payment. The mortgage lender may also make an assumption as to the movements of interest rates over the long term and ask ‘if interest rates rise could the applicant afford the mortgage?’ The process associated with judging affordability has become more automated. In the past underwriters would manually assess your affordability but now most is automated with many lenders basing the decision on commitments contained within the Experian and Equifax credit reports.

The last feature to note is ERC or Early redemption penalties or just redemption penalties. This is the penalty for paying off the mortgage early or paying off the mortgage before the initial incentive period ends. Redemption penalties are very common on fixed mortgages and tend to run for the period of the fixed rate. It is also important to note that occasionally redemption penalties extend past the fixed rate period. It is important to tell your mortgage broker if you do not want a fixed mortgage with an extended tie in. It is a good general rule that the better the rate the longer or higher the redemption penalties i.e. the more it will cost you if you decide to redeem or switch mortgage. Redemption penalties tend to be quoted as a % of the mortgage redeemed or a number of months interest. Examples include:-

If you pay your mortgage off in the first 3 years we will charge you an early redemption penalty. The early redemption penalty will be equal to 3 month’s interest. 3 month’s interest as calculated on the amount redeemed.

If you pay your mortgage off in the first 5 years we will charge you an early redemption penalty. The early redemption penalty will be equal to 5% of the amount redeemed.