We can find the best mortgage for you from a choice of fixed rate repayment discount capped rate cashback and endowment

Taking out a mortgage to buy your home could be the biggest financial commitment you ever make.

It means committing yourself to making payments every month. And of course, if the mortgage rate changes, your payments could change too. Choosing a mortgage can be confusing because there are so many different types available - and so many different lenders, each with their own rates of interest and special deals. You need to understand your options clearly, so you can make the right choice about the most suitable mortgage. This is where we can help.

Mortgage types to look for
Repayment options
Repayment mortgage
Interest only
Endowment mortgage
ISA mortgage
Pension mortgage
Essential Protection
What does it cost to buy a home?
The steps to buying a home

Mortgage types to look for
Mortgage rates, like all interest rates, can go up and down, and each change will affect your monthly payments. That's why, instead of charging interest at the standard variable rate, many lenders offer various options to help you stay in control. Your adviser has all the details.

The Standard variable-rate mortgage
With this type of mortgage your payments go up and down as the lenders mortgage rate changes. Mortgage interest rates tend to move in line with the base rate set by the Bank of England but there is sometimes a delay.

The Base-rate tracker mortgage
This is similar to a standard variable rate mortgage but the rate is a set amount above or below the Bank of England base rate and immediately alters with changes in that rate.

The Fixed-rate mortgage
As the name implies, with this type of mortgage your rate is fixed for a stated period of time, so your mortgage payments are effectively 'frozen' This can help to make budgeting much easier, very helpful when you're buying your first home or starting a family for example.

The Discounted-rate mortgage
Many lenders offer discounts off their standard variable rate for a set period. This is a good way for borrowers to keep repayments lower in the early years of the mortgage

The Capped-rate mortgage
With a capped mortgage your repayments can vary, but only up to an agreed limit. Once at this limit, if mortgage rates go higher, your repayments stay the same. If rates go down, so will your repayments. A variation on this is to include a 'collar'. This is a rate below which your rate cannot fall.

The Cashback mortgage
Here, the lender offers a cash lump sum to new borrowers. The lump sum can be quite large - perhaps several thousand pounds. The cashback can be used in any way you wish, to pay for some essential items in your home such as carpets, a new kitchen or you can use it to buy a car or have a holiday It's up to you.

The Flexible mortgage
These can take many forms and, as the name suggests, are designed to be as flexible as possible. They offer the borrower a variety of repayment options, putting the buyer in control. The nature and extent of the flexibility differs from one lender to another. But all flexible mortgages offer one or more of the following features:

Overpayments - This is where you can pay more than the normal monthly mortgage payment and/or pay off extra chunks of the loan. You can overpay with most ordinary mortgages too but the amount of the loan outstanding and/or the interest payments do not usually get changed as often. With flexible mortgages you usually benefit straight away if you overpay.

Underpayments - You may be allowed to pay less than the normal monthly mortgage payment for a limited period (for example six or twelve months). Most lenders require you to build up a fund of overpayments first.

Payment holidays - You can stop making payments altogether for a limited period. This could be useful if, say, you lose your job or take time off to have or look after a child.

Note: With underpayments and payment holidays, any unpaid interest will continue to mount up and will increase the total cost of your loan.

Loan drawdown - You borrow extra either by increasing the size of the mortgage loan (up to an overall limit) or by borrowing against earlier overpayments. With a traditional mortgage you would have to go through the cost and formality of taking out a separate top-up loan.

At the end of any fixed, capped or discounted rate period your monthly payments may increase when your interest rate changes to the lenders standard variable rate. It is important that you budget accordingly to meet any increase in your payments.

You can also arrange combination products which offer, for example, a mixture of cashback with a fixed or discounted rate.

Products change rapidly and some special mortgage schemes are limited. Most lenders offer a range of special interest rate options as described. Some or all of these products can have 'lock-in' periods or redemption penalties, during which you will have to pay a financial penalty if you want to repay or change the terms of the loan. It is important when you consider the type of loan to also consider any penalties the lender may charge for repaying the loan early and how these may affect your circumstances.

Another factor to consider is whether you can move your product (known as portability) if you want to repay the loan and buy another property with a mortgage from the same lender. Arrangement fees and other factors are also likely to influence your final choice. Your financial adviser will be able to explain the various options and what conditions apply.

Repayment options

How you repay your mortgage depends on your circumstances and how long you will own the property you are buying. There are two basic ways to repay what you have borrowed.

Repayment (Capital & Interest) mortgage
With this, you make monthly payments to the lender over an agreed number of years (called the mortgage 'term'). Many mortgages last for 25 years but they can be for shorter or longer periods. Your payments gradually pay off the whole amount you have borrowed (called the 'capital' or the 'principal') as well as the interest charged on the loan. Provided you make all the payments agreed with the lender, a repayment mortgage guarantees to repay the whole loan by the end of the term.

There is no built in life cover with this method and you will need to effect a life assurance policy to cover the amount borrowed should you die during the mortgage term.

Interest only mortgage
With this, your monthly payments to the lender only cover the interest on the loan. They do not pay off any of the amount you have borrowed. This is why you usually make separate payments into a savings scheme each month to build up a lump sum. When the mortgage term ends (or earlier), you use the lump sum to pay off the amount you originally borrowed. It is your responsibility to make sure you have sufficient funds available to repay the loan at the end of its term.

So which method is best for me?
When you are thinking about the repayment method there are many areas to consider. To help you decide what might be the most suitable method for you, we have set out some of the main advantages and disadvantages together with general comments on each method. You can have a combination of more than one of the methods we have mentioned.

Repayment mortgage

Advantages
• You will have a guarantee that the mortgage will be repaid at the end of the mortgage term. You will need to increase your payments if interest rates rise. But, if interest rates fall, your payments can be reduced. Many lenders only change payments annually. The repayment method does not depend on the stock market or investment performance.

• It's straightforward in that each month you pay back some of the loan and interest on the loan.

• It can be flexible - you can usually pay more to reduce the size of the loan and reduce monthly interest charges. If the lender agrees, you can change the monthly repayments or the length of the mortgage term.

• Monthly payments may be lower than other methods which can be an advantage if you have significant outgoings and are stretching to afford your mortgage payments.

• Should your circumstances change it may be possible to change to another repayment method in the future which more appropriately meets your needs at that time.

Disadvantages
• You do not have built-in life assurance - you will need to take out a separate life assurance policy to make sure the loan is repaid if you die before the end of the mortgage term.

• You may not always be able to transfer the life assurance policy if you move or increase your loan. The policy is normally arranged for the original loan only and you may need to cancel and start a new policy if you increase your mortgage loan.

General comment
Repayment mortgages are straightforward and are guaranteed to repay the loan. The outlay can be cheaper than other repayment methods. You have to arrange life assurance protection and any other 'critical illness' cover separately. Repayment mortgages could be very suitable if:

• you feel the payments are more affordable than the generally higher monthly payments of an endowment mortgage (this is important if you have, or will have, significant monthly outgoings over and above your mortgage payments);

• your long-term employment prospects are not very secure or if your earnings change or are seasonal and could fall below the level you would expect to be able to pay to maintain your mortgage repayments; or

• you consider some other change in personal circumstances may affect your future ability to keep up your mortgage payments.

Interest only

Advantages
• You decide how to repay the loan at the end of the term - interest only mortgages can be linked to various types of investments: endowment policies, ISA's, personal pensions and other investment options.

Disadvantages
• The savings scheme or investment does not guarantee to provide enough to pay off the mortgage.

• With all interest only loans you need to accept some investment risk in building up a sum of money to repay the loan. Provided your investment grows as expected, the mortgage will be paid off. If the investment makes more than expected, you get a cash bonus after repaying your mortgage. If the investment grows more slowly, you may need to increase your monthly payments.

General comment
• You must be confident that you can repay the loan from your own sources at the end of the mortgage term. If you do not make adequate provision to repay the mortgage you cannot rely on the goodwill of the lender, who may demand repayment at the end of the mortgage term, which could mean putting your home at risk.

Interest only repayment vehicles
• As already explained with an interest only mortgage you have the freedom to choose the savings or investment vehicle that you will use to repay the amount borrowed at the end of the mortgage term. Three of the more common methods are explained over the following pages.

Endowment mortgage
This is where you take out an endowment policy which is designed to end at the same time as the mortgage. The money you put into an endowment policy builds up over a set number of years (the policy 'term'). At the end of this term, your policy 'matures' and you get a lump sum, which you can use to repay your mortgage loan.

Advantages
• Life insurance - this is built into an endowment policy which means that the mortgage will be repaid if you die within the period of the loan.

• Portability - you can use your existing endowment policy for your new loan when you move house. If you move home it makes financial sense to keep your existing endowment policy and simply cover any more borrowing by whatever method you find suitable.

• Another way of saving - if you decide to sell your property and not buy another one you could repay your mortgage by another method. You can keep your endowment in force to boost your long term savings. You also have valuable life assurance protection for your family throughout the lifetime of the endowment.

• Other additional benefits can be included in your policy, such as Permanent Total Disability benefit, Critical Illness cover or Waiver of contribution benefit, giving you and your family even greater security.

Disadvantages
• Inflexibility - there are financial penalties if you stop an endowment policy before the end of its full term. Endowments are long-term contracts designed to provide for repayment over the period of the loan. You need to keep the plans in force until the maturity date so you get the full value.

• Possible need to top up your savings - there is no guarantee that the final amount will be enough to repay the loan at the end of the mortgage term. Many endowment plans have regular reviews built in to help keep your investment on track. If investment returns are less than expected, you may find you have to pay extra contributions to make up any shortfall.

• If you ever have financial problems and are struggling to meet your payments, it may not be possible to take a payment break or reduce your contributions.

• There is no guarantee the policy will reach its target amount as the growth is linked to stock market performance.

General comment
Endowments can offer you a package of benefits as long as you keep the plan in force until the end date.

Returns on your policy are subject to performance and it is important that you maintain the contributions to your policy over its full term.

If you have an endowment policy - keep it in force - you could still use it. The financial penalties can be high if you decide to cash it in to take out a new one. You should only consider cancelling the plan after taking proper advice.

Your policy provider will send you reviews every 2 years. Your payments may need to be increased depending on how it is performing.

ISA Mortgage
This is where you put regular savings into an individual savings account (ISA), up to the annual limits set by the government. Over time your savings build up a lump sum which you can use to repay the amount you borrowed. You can use ISA's to invest in a wide range of savings and investments.

Advantages
• Tax efficiency - currently the return on the investments is tax-free. There is no tax on withdrawals from an ISA.

• Wide choice of investments - you can use cash, stocks and shares and life insurance to build up your ISA savings.

• Flexibility - you can stop paying into an ISA at anytime and you can withdraw your savings at any time. This makes them very flexible if you decide you'd like to pay off your mortgage early

Disadvantages
• You cannot pay more than £7000 into an ISA in each tax year and this level could be reduced in future by subsequent legislation. If you have a very large mortgage, the lump sum from this level of saving might not be enough eventually to pay off your mortgage loan. Tax legislation is subject to future change.

• No life insurance - most mortgages which will be repaid from the proceeds of ISA's will not include any life cover. You will need to buy life cover, perhaps in the form of term insurance, which is not linked to any savings scheme.

• Possible need to top up your savings - there is no guarantee that the final amount will be enough to repay the loan at the end of the mortgage term.

• Stock market risk - this could be a problem if you need access to your investment when share prices are low. The value of an ISA is not guaranteed and can go up and down depending upon investment performance.

• Keeping a track of your ISA's performance may be a problem as there is no automatic review process. Payments may need to be increased dependant on the performance.

General comment
• Whether an investment backed interest only mortgage is suitable for you depends on your attitude to risk - how well you think investments will grow over the term of your mortgage loan.

Pension mortgage
This is where, alongside an interest only loan, you make payments into a personal pension. When you start to take the pension (between age 50 and 75), you can take part of your pension fund as a tax-free lump sum. A pension mortgage uses this lump sum to pay off your mortgage loan.

Advantages
• Tax - using your personal pension can be a very tax efficient type of mortgage. The lump sum from your pension fund is tax-free. You also get income tax relief at your highest rate on contributions.*

• Tax legislation is subject to change. The value of any tax relief will depend on your own financial circumstances.

Disadvantages
• Less at retirement - by using all or part of any tax-free cash lump sum (currently up to 25% of the total fund value), from the pension fund at your chosen retirement age to pay the mortgage loan, you will get a reduced pension to live on.

• Tied to retirement - generally you are not allowed to take the pension and the lump sum from a personal pension plan before age 50, possibly going up to 55 by 2010. So you may be locked into paying interest over a longer mortgage term than you would like.

• Inflexible - a personal pension may not be the best way for many people to save for retirement. This could be the case, for example, for someone who takes out a personal pension but is able, later on, to join an employer's pension scheme which is better value for them. They may then need to find another way of building up a lump sum to repay their mortgage.

• The value of a personal pension plan may not be guaranteed and may go up and down depending upon investment performance. There is no guarantee that a pension mortgage will repay your loan at the end of the mortgage term.

• Keeping track of the performance of your pension may be a problem as there is no automatic review process. Payments may need to be increased dependant on the performance.

General comment
Pension mortgages are very tax efficient. The amounts you can contribute to your personal pension plan are limited under rules laid down by the Inland Revenue.

Essential Protection
Once you've bought your property you'll want to make sure that you, your family and your home are protected. We have provided a brief explanation of the different types of protection that are available and your adviser can help to make all the arrangements.

Critical Illness Cover
Many people think of taking out protection for their mortgage in case they die, but how would you cope if you suffered a critical illness or disability?

Most people still believe 'it won't happen to me' but it is important to consider protecting yourself and your family by including this benefit. This will pay out a lump sum on diagnosis of one of the specified critical illnesses, allowing you to repay your mortgage.

Your adviser can help you determine the type of cover that meets your needs and will give you details of the benefits.

Income Protection
Have you considered how you would continue to pay off your mortgage and other household bills if you were off work for a substantial amount of time?

An Income Protection Plan will provide you with a regular income during the period you are off work, after the chosen deferred period. This will help you to maintain your standard of living for as long as it takes before you are fit enough to get back to work or retire, leaving you with the peace of mind to concentrate on your recovery.

In addition to protecting yourself against the inability to work due to accident or sickness, you also need to consider taking out mortgage payment protection insurance to protect your income in the event of you being made redundant.

Your adviser can help you arrange all these kinds of protection.

Buildings and contents protection
If your property is 'freehold' (that is, you own it outright), you'll certainly need to protect it against major damage such as fire. If the property you buy is leasehold the insurance of the building is usually arranged by the freeholder You'll want to protect your home's contents as well. Again, there are many policies to choose from. Some lenders will insist upon you arranging these insurance's with them as a condition of providing certain mortgage products. Your adviser will be able to tell you if this is the case.

What does it cost to buy a home?
You will need to work out how much you can borrow and your adviser will help you to calculate this. You also need to know how much it costs to buy a home. The following costs will affect the amount you have for a deposit.

Buying costs

Solicitor's fee
The amount your solicitor charges for 'conveyancing' will depend on a number of things including the value of the property Ask your solicitor for a quote and for advice on fees for acting for the lender, which your solicitor should normally be able to do.

Finding a Solicitor
Having a solicitor in place at the beginning of the process will help things progress quickly when you have found the property you wish to buy If you don't have a solicitor, your adviser will be able to suggest some.

Local authority search fee
This is an application to the local authority for information about the property, and any planned developments which could affect your home. This fee is usually paid through your solicitor.

Land Registry fee
The Land Registry is a central record of land ownership. You must pay a fee to register yourself as the new owner. The cost depends on the price of the property This fee is normally paid through your solicitor.

Stamp duty
This is a one-off tax payment and is based on the purchase price of your home. Your adviser can give you information on how to calculate this payment. The fee for this is paid through your solicitor.

Valuation and surveys
Your lender will want to check the condition and marketability of your chosen home. They will use a qualified surveyor to assess these things and provide a current valuation. The fee for this is based on your home's value or its purchase price. This type of survey, known as a valuation report, is arranged for the lenders benefit.

For an extra fee, you can get your own more detailed report, called a Homebuyers report, from the lender's surveyor For much older properties, or those with defects, a full structural survey may be a good idea. This costs more again, but gives you a detailed report on the structural condition of the property.

Buildings and contents insurance
This is insurance of the property against fire and other risks that will normally be a condition of the mortgage loan. You may also want to insure your contents. Again, the lender, or your adviser, can help you work out the cost.

Mortgage indemnity guarantee insurance (MIG)
If you borrow a relatively-high percentage of the value of the property (usually over 75%) your lender may want a one-off insurance premium. This varies from lender to lender, some lenders have decided not to enforce this requirement on loans of up to 90% of the property value. Ask your adviser for details. This insurance does not protect you but insures the lender in the event that your property is repossessed.

Removal expenses
These depend entirely on the quantity of possessions you have and the distance involved, and vary greatly between firms. Get several quotes.

The steps to buying a home
Except in very rare circumstances, home-hunting cannot be done quickly Even when you have found a home, the financial arrangements and legal side will almost certainly take several weeks. Four to six weeks between agreeing a sale and exchange of contracts is common, with another two weeks before completion, or whatever you agree with the vendor (the seller). Remember too that in England, a verbal agreement with a seller is not usually legally binding. However, both you and the seller should try to keep to any agreement. But if, for example, you get a bad survey report, you are entitled to try to re-negotiate the price or, pull out altogether Take the process a step at a time, don't try to rush things, and you should find your purchase runs smoothly.

The following tips will help you make the financial decisions necessary, and your adviser can provide any assistance you require.

Keys to success

1 Your adviser will help you work out how much you can borrow, and what price of home you can afford.

2. Contact estate agents, study local papers, look at lots of homes.

3. With the help of your adviser, decide what sort of mortgage you want, and pick the one that suits you best.

4. When you've found the home you're after, make an offer and agree a price.

5. Contact your solicitor and ask them to begin the conveyancing process.

6. Contact your adviser, tell them about the home you have found and arrange for your mortgage lender to carry out a valuation. We would also recommend that you arrange a Home Buyer's Report which is carried out for your benefit. If it's an older property, you might want to arrange a full structural survey with a surveyor.

7. Wait while your solicitor carries out the searches. You might want to revisit the property to measure up for carpets and curtains. Ask some removal companies for quotes. If you want any work done on the property as soon as you move in, start arranging for quotes.

8. If the valuation is satisfactory, an Offer of Advance will arrive from your lender. So will the results of the survey, if you've asked for one. If all is well, take it to your solicitor. He or she will have some documents for you to look through and sign.

9. The contract is ready. You're nearing the end now. Agree a completion date and sign the contract.

10. Your solicitor and the seller's exchange contracts. You pay the agreed deposit. The house is legally yours! But you can't move in until the day of completion.

11. Completion! The moment the seller's solicitor confirms that they have received the full purchase price, the keys are yours. The seller will have moved out. And you're in! Welcome home.