Mortgage features explained

Please click on the relevant heading and you will automatically be taken to your chosen section.

Daily interest
Overpayments
Underpayments
Payment holidays
Change of term or type
Drawdown facility
Flexible payments
Low start facility
Redemption penalties
Additional lending
Direct debits

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Daily Interest

Interest on your mortgage is calculated daily. This means that every time you make a payment into your account it reduces the amount of interest you pay, with immediate effect. If you would like to see exactly how interest is calculated, a simplified example has been included as appendix A. If you make regular additional payments into your account you will substantially reduce the total amount of interest which you pay. The graph below illustrates that paying an extra £40 each month on a 25 year £95,000 mortgage will actually repay the mortgage over 23 years. The chart assumes that the interest rate of 5.45% remains constant and that all payments are made on the last working day monthly.

The chart below illustrates the amount of interest you will save each year in the example above. The total amount saved over the term of the mortgage is £7,309. Borrowers are free to make additional payments into their account whenever they wish.

Overpayments

You are free to make additional payments into your mortgage at any time without penalty and without limit on the number or amount of such payments. Overpayments of less than £5,000 are included in your history and are therefore taken into account in calculating the amounts of underpayments or payment holidays which may be available to you.

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Underpayments

If your history shows that your payments made to date exceed payments due to date, then you may make underpayments on a regular or one off basis. Any such underpayments must not exceed the cumulative total of previous overpayments, but there are no other restrictions which apply. You do not have to seek the prior agreement of the Society to such underpayments, but you are advised to check the figure showing on your history with the Society, to avoid any possibility of falling into arrears by mistake.

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Payment holidays

If you have a history which is positive then you may stop making your monthly payments completely until you have used up your positive balance. You do not have to seek the prior agreement of the Society, but you are advised to check the figure showing on your history record with the Society, to avoid any possibility of falling into arrears by mistake. If you pay by direct debit it is your responsibility to contact the Society to arrange a suspension of such payments.

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Change of term or type

If you wish to pay your mortgage off more quickly, the Society will always agree to reduce the number of years remaining. If you have a clear idea of the monthly payments you could afford, we will be happy to reduce the term to the appropriate period. Alternatively, we will be happy to quote revised monthly payments for a number of different periods to help you decide. Accelerating payments in this way will result in you saving interest. If you wish to extend your term, perhaps to resolve a temporary financial difficulty, please contact the Society to discuss the full implications. The Society will usually be happy to agree to your request, but it is important for you to understand how much additional interest you will have to pay as a result.

You may also convert your mortgage from interest only to a repayment basis or vice versa.

Subject to government mortgage regulation and to your request falling within the Society's current lending policy, there are no restrictions on the number of changes to term or type which you are allowed to make.

Changes of term or type are regulated by the Financial Services Agency and as a result there is a set process which must be followed before you are allowed to apply. You should contact the Society as soon as possible if you are considering making such a request. Alternatively complete form B(change of term) or form C(change of type) IN FULL and send it to the Society.

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The drawdown facility

A 'drawdown' facility may be useful for a number of different reasons, for example if you are uncertain exactly how much you need to borrow because you haven't yet costed improvements to the home you are buying. It works like this.

• You want to buy a house costing £100,000 and have a deposit of £40,000.
• You therefore need a mortgage of £60, 000.
• You think you want to spend up to £15,000 on improvements after you move in.
• You apply for a mortgage of £75,000 (subject to status).
• You will receive an offer for this amount.

At completion you can draw as much of the £75,000 as you need, leaving the remainder available to draw at a later date. In the meantime interest and repayments will only be calculated on the amount that you have actually borrowed.

The balance remains available for you to draw on at any time either in full or in part, subject only to a minimum draw of £5,000.

This guarantee of availability of further funding is on the basis that there are no adverse changes to your personal circumstances or any mortgage arrears between the original advance and the date of any further drawdown. Drawdown facilities are not just limited to home improvements but are also available in respect of any future anticipated personal expenditure. To request the release of an undrawn amount, please complete form D attached.

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Flexible payments

Mortgage payments must be made in full on or before the last working day monthly. The Society allows you complete flexibility in making payments within this requirement. The preferred payment method is direct debit because when interest rates change you will not need to take any action at all. Paying by direct debit also guarantees that you will never be in arrears (provided your payment is honoured) nor incur administration charges due to arrears. If you post a cheque, you should allow extra time to cover any postal delays to ensure that your payment arrives on time. If you pay by standing order your payment will need to leave your Bank no later than the 23rd monthly to ensure that it arrives on time. You will also need to amend your instruction at each rate change.

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The low start facility

When you move into a new home it usually means a bigger mortgage as well. The Society understands that a larger monthly commitment coupled with a period of heavy expenditure on improvements, carpets, curtains and the inevitable unforeseen expenses can be a strain on even well-planned resources. That is why a low start facility is available. It works like this.

• You need a mortgage of £100,000 to buy a property valued at £150,000.
• Your income is sufficient to allow you to borrow £106,000.
• You apply for a mortgage of £106,000.
• At completion £100,000 is sent to your solicitor to buy the property
• The other £6,000 is paid back into your mortgage leaving payments £6,000 ahead.
• Your monthly sub is £600.
• Your payments are £6,000 ahead so you do not need to make payments for the first 10 months.
• You are still free to make payments in part or in full if you wish.

It is also possible to arrange a low start facility which involves making payments on an interest only basis for an initial period say 12 months, and then converting to a repayment basis. It is your responsibility to tell the Society if you wish to exercise either of these options.

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Redemption penalties

The Society does not and has never charged redemption penalties. This means you are free to repay your mortgage in part or in full, whenever and however you choose, without any additional charges.

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Additional lending

No matter how well you plan, there will be occasions when you need a little extra money whether it be for small items of personal expenditure or for a major projects such as an extension. The process for additional lending is quick and easy (although in the case of regulated loans there is a formal process which must be followed).

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Direct debits

Normally a direct debit will claim the exact amount of your monthly sub from your bank account. When your sub changes you do not have to take any action - the direct debit will be amended automatically. For those people who want to overpay on a regular basis there is another option available. On receipt of form E attached the Society can claim a fixed amount each month, but because interest rates (and therefore your sub) can rise it is possible that your fixed payment could become insufficient. As a result fixed direct debit instructions are only really a sensible option where the fixed amount significantly exceeds your sub. It is your responsibility to tell us to amend a fixed direct debit should rates rise to the point where your sub exceeds the fixed payment.

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