Your home may be repossessed if you do not keep up repayments on your mortgage

Key Things to Know and Understand

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The credit crunch means there are fewer mortgages on the market

The credit crunch has had a huge impact on the cost and availability of mortgages.

News of the mortgage squeeze means that homeowners can't get away from talk of Libor or loan-to-value ratios. But what does all this jargon mean?

Here is a quick guide to some of the more common phrases thrown around by analysts in recent weeks that might have mystified householders:

Standard Variable Rate (SVR)

The SVR - or standard variable rate - is the normal interest rate at which lenders offer a home loan, without any discounts or deals. This is the rate that you naturally transfer onto when your current fixed rate or tracker rate finishes. You are no longer tied under contract to the lender when you reach this rate

A lot of borrowers are finding that by allowing their mortgages to expire onto the SVR they are now paying less than when they were tied into their lender

Early Repayment Charge (ERC)

This is a financial penlty that the lender will place against an applicant if they try to redeem their mortgage whilst still tied to their current products. This penalty phase normally coincides with their 2/3/5 year rate end or it could be applied if the applicants tried to over pay too much from their mortgage balance (normally more thahn 10% of the loan balance per annum).
Many people have recently found themselves on high rates that were taken from 2008 - 2009 and as a result did not gain the benefits when the Bank of England base rate fell. Many feel they should remortgage to take advantage of the lower rates but it is always wise to check how the ERC will penalise you before making such a move.

Capital Repayment and Interest Only Mortgages

There are 2 main types of mortgage available on the market.

Capital repayment- Is the traditional type of loan mortgage. You would take out a loan amount and your monthly repayments would constitute a portion of loan and a portion of interest repayment every month. At the end of your mortgage loan term your mortgage would be fully repaid.

Interest Only- Is a low cost loan often offered to first time buyers as a "Start Up" mortgage or people that are on an extremely tight budget. This mortgage differs in the fact that you will only repay the interest that is generated from the loan and none of the capital that is borrowed. The payments are therefore lower but this is because the loan amount that was taken out originally will never decrease during the term.

Part and Part- Is not a common mortgage and is exactly what it says. It is part Capiutal Repayment and part Interest Only. The client may not be able to budget for a full repayment mortgage but would still like to be able to reduce the loan taken out. With a Part and Part (P+P) they are able to take a percentage of the loan on P+P and part of it on repayment. This means they can reduce one portion of their loan while the other part stays reasonably low cost

Fixed, discounted, tracker...

Common types of mortgages rates can include fixed-rate deals, when the interest rate does not move for a fixed period of time. An estimated 52% of new customers take out a fixed-rate deal, according to the Council of Mortgage Lenders.

Trackers - about 35% of new mortgages rates - are linked to a rate not set by the lender, such as the Bank of England's base rate or the Libor (see below). Discounted mortgages have a cheaper rate of interest for a set period of time, after which the interest rate increases.

Term

The term will have the biggest impact on how much your mortgage will cost you. Most First Time Buyers tend to look at the longest term they can find and this can end up costing them tens of thousand of pounds extra in interest repayments. By simply reducing the term by a few years will mean a slightly higher monthly payment to the lender but will save thousands of pounds at the end of the term.
Example
Total to pay on a £100,000 mortgage over 25 years at 4.75% throughout = £171,191
Total to pay on a £100,000 mortgage over 30 years at 4.75% throughout = £187,949
Total to pay on a £100,000 mortgage over 35 years at 4.75% throughout = £205,476
Total to pay on a £100,000 mortgage over 40 years at 4.75% throughout = £226,251

Loan-to-value (LTV)

The loan-to-value ratio represents the level of equity in a property. For example, if a house is worth £200,000 and it has a mortgage of £100,000 on it then its loan-to-value ratio is 50%.

Lenders prefer to lend on products with a low low-to-value propositions as this represents the least risk. It is advisable for anyone buying a home to raise as much deposit for the purchase as possible to reduce any potential interest rate hikes the lender may impose

Stamp Duty Land Tax (Stamp Duty)

Current rates set by HMRC for Stamp Duty Land Tax are as follows:
Purchase up to £125,000 - Zero Liability
Purchase over £125,000 up to £250,000 - 1% Liability of purchase price
Purchase over £250,000 up to £500,000 - 3% Liability of purchase price
Purchase over £500,000 up to £1000,000 - 4% Liability of purchase price
Purchase over £1,000,000 - 5% Liability of purchase price
**Please note that First Time Buyers are exempt from Stamp Duty for purchases up to £250,000, however is any applicant has previously held a registration of any kind on the Land Registry then the puirchase willretain exemption and SDLT will be applicable.