Wednesday 10 March 2010

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Mortgage Guide

A mortgage is a loan to buy your home. You borrow money and pay it back with interest over a period of time (the ‘mortgage term’) that you agree with the lender – usually a bank or building society.

The loan is secured against your home so if for any reason you can’t repay it, the bank or building society can sell your home to get back its money.

This depends on your personal circumstances, such as your income, your outgoings and whether you’re buying alone or with a partner – see affordability above for more info.

Either "Interest Only", where you just pay the interest OR on a "Repayment" basis (where you pay interest plus an extra amount each month, to ensure your mortgage is paid off by the end of the term. See mortgage types for more info.

Once you’ve decided how to repay your mortgage, you can choose from different mortgage features and interest-rate deals. See mortgage deals above, for more info.

Right here! We can help you as we are fully qualified and expert mortgage advisors.

We will discuss your requirements, offer our recommendations and then arrange your mortgage for you.

The FSA state.... Only FSA-regulated firms and their agents should give advice about mortgages, and these firms must follow our standards when dealing with you.

You have a right to expect the adviser to recommend only products that are suitable for you.

If the product they recommend is unsuitable for your specific needs and circumstances based on the information you gave them, you can complain to the firm and expect compensation for any loss.

You don’t have to take advice, but if you don’t and the mortgage you choose turns out to be unsuitable, you will have fewer grounds for complaint.

If you do not have grounds, it is likely that you will have to pay to switch your mortgage

The standard mortgage term is 25 years, but you can choose a different term if it suits you and the lender agrees that you can afford it.

With a shorter term, you’ll have higher monthly payments but pay less in total. With a longer term, you’ll pay less each month but more in total.

Beware of having a mortgage term that continues past the age you retire unless you’re sure you’ll be able to afford the payments then.

The payments you make to the lender every month reduce the amount you owe as well as paying the interest on the loan. So each month you pay off a small part of your mortgage.

It’s a simple, clear approach – you can see your loan getting smaller. If you make all the agreed payments, the loan will be fully paid off by the end of the mortgage term.

However, in the early years your payments will be mainly interest, so if you want to repay the mortgage or move house, you’ll find that the amount you owe won’t have gone down by very much.

As the name suggests, your monthly payment only pays the interest charges on your loan - you don’t reduce the loan itself. Because you’re only paying off the interest your monthly payments will be lower than an equivalent repayment loan.

It’s very important you arrange some other way to repay the loan at the end of the term, for example, through an investment or savings plan. Make sure you know from the outset how you intend to pay off the loan.

With some lenders, you may be able to have a split between repayment & interest Only

Lenders should lend responsibly. This means that they should consider whether you can afford the mortgage repayments now & throughout the mortgage term. E.g some lenders offer a discounted rate to start with, but will you be able to afford the repayments when the discount ends?

Recently it has become more common for lenders to make an affordability assessment (rather than a multiple of salary) when calculating how much they will lend you. Each lender has its own method, but generally they all try to calculate your disposable income, taking account of:

1. your total income;

2. any money you owe, such as loans and outstanding credit card balances; and

3. household bills and living expenses.

Be sensible with the level of borrowings and don't over stretch yourself with mortgage payments. After all, there's no point in buying a more expensive house, if you don't have the finances to enjoy living there.

Example "fixed @ 4.99% for 2 years" - your payments will be fixed at a specified amount for a period of time.

After this time, you would normally be switched back to the lenders SVR (Standard Variable Rate) Normally after the beneficial rate period, you would look to either switch to another mortgage deal with the existing lender, or remortgage to another lender for a new 'deal'.

Example "discounted by 1% for 3 years" - your payments will be discounted from the lenders SVR for a specified amount of time. If lenders SVR is 4.5%, then the 'pay rate' would be 3.5% in this example.

Example "Tracker @ 2% over bank Of England Base rate for 4 years" - your payments are variable and will be changed on a monthly basis in line with the Bank Of England (BOE) base rate. If the BOE base rate is 2%, then the 'pay rate' would be 4% in this example.

Example "capped @ 6% for 5 years" - the amount you pay will be a maximum of 6% but if the lenders SVR is lower, you will pay that interest rate.

Standard Variable Rate (SVR) - this is the rate charged by the bank typically, all banks have different SVR's and they can vary substantially.

With some lenders, you are able to combine 'off-setting' with their preferential rates.

With an offset mortgage, your bank current account, savings accounts, or both are linked to your mortgage. Your accounts are usually, but not always, held with the mortgage lender.

Each month, the mortgage lender reduces the amount you owe on your mortgage by the amount in these accounts, it then works out the interest due on the balance of the mortgage. So, as your current account and savings balances go up, you pay less interest on your mortgage. As they go down, you pay more interest.

To the lender, usually to reserve your mortgage funds for you or to cover the administration

costs of processing your mortgage.

Some lenders may link the fee to special deals with a lower initial interest rate. These vary and can be significantly higher if linked to a special deal.

These large fees can greatly increase the overall cost, particularly if you add the fee to the loan – and so pay interest on it. Check the overall cost of this mortgage section of the KFI to

find out the overall cost for these special deals.

To the lender for assessing the value of the property and so whether it is safe for the lender to lend against. On occasion, the lender may offer a specific deal where this fee is not charged.

You may also wish to obtain a more detailed survey of the property, this cost is payable by you.

This is a charged by the broker (us) for the work that we carry out for you. In return our expert advisers will assess your requirements, give personal advice to you and make your application direct to the lender.

Our typical fee is between £295 and £495 and we will sometimes also receive commission from the lender. We also offer a service where we agree a fee and the commission is refunded to you. Please ask for further details.

Some application fees are actually payable on completion, rather than application. This is sometimes preferential, as you may decide not to go ahead with the mortgage and you won't have already paid the fee, which is typically non-refundable.

Payable to the lender, if you repay all or part of your mortgage before the end of the agreed term.

This may not always apply, but the "What happens if you do not want this mortgage any more?" part of the KFI will explain when it applies and give cash examples. Check the terms and conditions of the mortgage for full details.

To the lender, if you’re borrowing a high percentage of the property’s value. The lender may charge this fee to take out insurance cover.

This protects them if you can’t pay back your loan and they have to sell your house at a loss.

The cost depends on how much you borrow and the size of your deposit.

Fee To Repay Lender - To your lender, whenever you repay your mortgage at the end of the agreed term.

Typically £75 – £300.

Telegraphic Transfer Fee - To the lender, for transferring the mortgage funds to the buyer’s

solicitor. There can also be a charge for forwarding the funds to the seller’s solicitor.

Typically £40 – £50.

Re-Inspection Fee - To the lender, if they need to re-inspect the property after the original valuation, usually to check if you’ve made agreed repairs.

Typically £50 – £100.

Own Insurance Fee - To the lender, if you don’t insure your property through them. Typically £25 but may be payable yearly or each time you change insurer.

If you want expert advice from a friendly & professional adviser, please get in touch.

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