Mortgages

1. Repayment / Annuity / Capital and Interest
This is the most popular type of mortgage. The borrower repays both capital and interest over the period of the mortgage, say, 25 years. Interest is greater at the start of the loan repayments but as the capital is repaid over the period of the loan, the interest reduces.

2. Interest Only Home Loans / Residential Investment Loans
With this type of mortgage, your monthly repayment covers only the interest on your loan and not the capital. The original amount you borrowed stays the same for the term of the mortgage. At the end of the term, you must repay the original loan in a lump sum. You may be able to do this by:

• taking out a pension policy or an endowment policy that is expected to grow in value by enough to repay the original loan or
• Selling the property and using the proceeds to pay off the loan.

A mortgage protection policy must be taken out so that if the applicant dies, the mortgage is repaid immediately. Therefore it is on a level term basis-not decreasing.

3. Pension - Backed Mortgages
Similar to the investment type mortgage, the capital is not repaid until pension age (60/65 if self employed) has been reached. The most attractive feature of this mortgage is the tax relief received from the pension contributions at whatever level of tax being paid ( currently 20% or 42%).

There are three main interest rate options available:

1. Variable rate
2. Fixed rate
3. Split rate

Variable Rates
Variable Rates offer the most flexibility. They allow you to increase your repayments, use a lump sum to pay down all or part of your mortgage without having to pay any fees or penalties.

Fixed Rates
With a fixed-rate mortgage, your interest rate and monthly repayments are fixed for a set time. Fixed rates are commonly available over one, two, three, four, five and ten years. After the fixed period, your rate changes to a variable or tracker rate, or you may decide to get another fixed-rate option. Although a fixed rate means your repayments cannot increase for a set period of time, your repayments will not fall if rates are cut. As a result, you could miss out on the benefits of lower interest rates. You should be aware of these penalties before you sign up to a fixed-rate contract.

Split Rates
This is where a portion of your mortgage is on a fixed rate and the other portion is on a varible rate. If rates move up or down, your repayments on the fixed part won’t change. You will benefit from any fall in rates on the variable part but your repayments will also increase if rates rise. A split rate could be a good option for you if you are unsure about the direction or scale of interest rate movements but need some security.

Other Rates:

Tracker Variable Rate / Tracker Mortgages
This is set at a fixed percentage or 'margin' above the ECB rate. It will also 'track' the ECB rate when this rate goes down. Tracker rates continue over the term of your mortgage.

Discounted Rate
This is a temporary rate, set below the standard or tracker variable rate. It is usually offered to first-time buyers or new customers and gives you lower repayments for an initial period, typically a year. At the end of that time you have the option to go onto a normal fixed or variable rate.

Capped Rate
This is a variable rate that will not go above a set level, the 'cap', even if interest rates rise. The rate can rise to that level but not above it, regardless of what happens to the ECB rate. It can also fall in line with ECB rate reductions.