What is a Residential Mortgage loan?
Scottish Building Society offers residential mortgage loans for the purchase of a main residence in Scotland. Our residential mortgage loans are for the purchase of a main residence for you and/or your family.
Additional loans, usually termed ‘further advances’, may be allowed to upgrade or maintain your home or may be used to repay other outstanding debts such as credit cards or personal loans.
The money you borrow is called the capital and we then charge you interest until the capital is repaid. The type of mortgage you are able to apply for will depend on whether you want to pay interest only or capital and interest.
Understanding different types of Mortgage loan
An arrangement whereby you gradually pay off the amount you borrowed over the term of the loan (the 'capital'), together with interest. You make one payment each month and as long as all payments are made on time the mortgage is guaranteed to be repaid at the end of the term.
Interest Only Mortgage
During the term of an interest only mortgage, your payments only go towards repaying the interest charged - you don't actually repay any of the money you originally borrowed (the capital).
This means you need to have other arrangements in place for paying back the capital such as an investment, pension plan or other repayment vehicle, which should be reviewed on a regular basis. This carries the risk that the vehicle you have chosen to build up the funds may not be enough to repay the loan amount at the end of the term. It is your responsibility to ensure that the repayment vehicle remains on track to repay the capital due.
Part and Part
A part and part mortgage is a combination of the two methods, where you pay back only part of the amount borrowed over the term of the loan together with interest. When the term ends, you will still need to pay off the remaining capital of your original loan.
Different Mortgage Products
Scottish Building Society mortgage products fall into two main categories:
Fixed rate – the interest charged stays the same for a number of years, typically three years. This is known as the fixed rate period.
Variable rate – the interest you pay can change.
All product rate types have different benefits and risks and you need to understand the risks and benefits associated with each one and be comfortable with those of your chosen product.
Fixed interest rate
The interest rate you pay will stay the same throughout the length of the fixed rate period, no matter what happens to interest rates. The fixed rate period will be outlined in the European Standard Information Sheet (ESIS).
A fixed rate gives you the assurance that during the fixed rate deal term the monthly payments of your mortgage will not change regardless of any external rate change, such as a change in the Bank of England Base rate or the Society’s Standard Variable rate.
This can be suitable if you wish to know exactly how much you need to pay each month or do not wish to be at risk of an unknown level or frequency of future interest rate rises within the fixed rate period.
However if rates do not rise over the fixed rate period then the mortgage may end up costing you more than the discounted variable rates available.
Variable interest rate
A variable interest rate can change at any time and tends to be affected by changes to External Rates such as the Bank of England Base rate. This means that monthly costs of the mortgage can change, go both up and down, and the level of the interest rate change can also vary from a small rise or fall to a large rise or fall.
As the level of rate change and its frequency are not predictable, when choosing this rate you need to be comfortable with the risks of potential changes to the rate and monthly payments and that you have sufficient available income to make increased monthly payments should rates rise.
Discounted variable rates tend to have lower initial interest rates and therefore lower initial monthly payments than alternative fixed rate deals.
European Standard Information Sheet (ESIS)
The European Standard Information Sheet details all the associated rates, features and fees related to a particular mortgage contract. The Financial Conduct Authority, one of bodies who regulate financial services firms, requires that all mortgage product information should be provided in a consistent manner in order that consumers can compare different mortgages easily.
You may find the explanations below useful in understanding the ESIS related to your mortgage contract.
This is the period over which you need to make the monthly payments against the mortgage loan.
It is possible that there may be a range of terms which may be appropriate to your individual circumstances and needs. You need to ensure that you consider other factors such as budget, life events such as retirement or other foreseeable changes which will influence which term is right for you.
Terms into retirement should not be considered unless you have the funds to maintain both the mortgage and your living and lifestyle costs from your retirement income.
Terms may be any length from 5 years to 40 years dependent on individual circumstances. A mortgage loan is likely to be unsuitable if you want to repay the borrowing over a period shorter than 5 years.
This is the price that you have agreed to pay for the property.
Loan to Value (LTV)
This is the amount of the loan that you wish to borrow compared to the value of the property you wish to purchase (the value is based on the opinion of a property valuer), or the purchase price if this is lower, expressed as a percentage.
For instance you wish to borrow £80,000 against a property valued at £100,000 then the loan to value is 80,000/100,000 = 80% LTV.
Annual Percentage Rates (APR)
The APR can be found in financial promotions and also in an ESIS. These rates include the cost of the mortgage together with other associated costs such as fees and charges and it is this rate that should be used to compare different loan offers.
Initial product rates may appear attractive but many carry high fees and charges. When considering total mortgage costs the initial and ongoing rates together with fees and charges it can provide a better basis for comparison.
All mortgage products offered by the Society have the same free, additional flexible features such as overpayment and underpayment facilities and payment holidays. You may not wish to use these features immediately but may prove beneficial in the future.
These features are all subject to certain terms and conditions. For instance, in order to either underpay or take a payment holiday you need to have made sufficient overpayments to your account to accommodate any request. The period of any holiday or underpayment period will be limited to the value of overpayments in your account.
If you have a fixed or discounted variable rate you may have certain limits on the amount you can overpay within a specified period. The specific terms and limits on overpayments to your mortgage, if any, will be detailed on your personalised illustration.
If you are taking out a mortgage to buy your home, a Home Report valuation will normally be available. In Scotland it is the current home owner, i.e the seller, who must instruct a Home Report by an independent surveyor which details the current condition of the property and its market value. This report must be provided to any prospective purchaser and it is used to assess the property’s worth as security for a mortgage loan as part of our underwriting process.
If you're applying for a re-mortgage or additional borrowing e.g. to carry out home improvements or repairs, we may require a professional opinion of the property’s value.
We'll arrange for a property assessment or revaluation for our own use – you won’t need to do this yourself. We may arrange for someone to inspect the property, or we may use a database that analyses the values of comparable properties. You may be asked to pay the costs of this.
The illustration will provide the details of the different monthly payments that will be due on the mortgage loan dependent on the product selected.
Other than any fixed rate payments quoted, all other payments are based on an assumed future rate. For instance the illustration will assume that any discounted variable rate will remain the same during the period of the discounted rate and that the standard variable rate quoted will remain the same for the remainder of the mortgage term. However both of these may change at any time.
The illustration therefore is not a guarantee of future interest rates but can only provide you with an indication of the costs.
This section of the illustration demonstrates the costs if all the illustrated rates were to be true in the future. It also assumes that you will make no other alterations to your mortgage, such as a change to a different product, or make lump sum payments or overpayments to reduce the mortgage loan amount and so on.
Mortgage Fees & Charges
Details of general mortgage fees and charges are outlined in the Fees and Charges section.
Other charges which may apply to your mortgage contract are explained below:
This is a charge for creating and managing your mortgage account. This might also include closing your mortgage account when your mortgage ends – the illustration will tell you if this is the case.
Porting a mortgage is the process of moving a mortgage product across from one property to another. There are terms and conditions that will apply when porting and you should seek guidance from us before you consider moving property.
You will be required to take out Buildings Insurance. You do not have to arrange this insurance through Scottish Building Society.
Need to Know
All mortgages contracts comply with the European Mortgage Credit Directive (MCD).
Compliance with the terms and conditions of an MCD regulated contract does not ensure repayment of the total amount of credit.
If you do not comply with the commitments of your mortgage, your home may be repossessed.