Solve Your Mortgage Maze
We’re well into ‘mortgage season’ – the peak time of year for buying a property with fierce competition for the best houses. Whether you’re racing to secure your dream home, or simply struggling with a mortgage-related puzzle, it pays to keep these tips in mind.
Mortgages are more elusive than they used to be. Hunting them down requires preparation, patience and – usually – professional help. Equally, you may already have a mortgage that is now poorly suited to your plans.
Prepare, prepare, prepare
If you want your dream home, do your homework first. Mortgage providers require full details of your financial situation, including your monthly outgoings and proof of income (usually your last four payslips or four months of accounts, if you’re self-employed). It may take you a few days to gather all the information you need, and in a home buying situation timing can be of the essence. Don’t be beaten to the post – have all your figures and documents ready well in advance. Download our Mortgage Survival Kit and follow the checklist so you don’t miss any important steps.
Don’t get bewildered
It isn’t just first time buyers who can be dazed by the range of mortgages on offer. With so much choice, it’s easy to be seduced by deals that look like great value but turn out not to be. Beware suspiciously low interest rates or remarkably long fixed-interest terms – often these compensate by charging big fees that could cancel out any savings you might make. You may also find that you are locked in for a long time with a single product or provider. If you are remortgaging, some deals will cover costs such as valuation and basic legal work, whereas with other deals you’ll need to pay these costs yourself. Most deals will tie you in with an early repayment charge, but what counts as ‘early’ can vary a lot. If you think you might move again quite soon, it’s not a good idea to lock yourself in for ten years – better to keep your options open. It’s all about looking for the best overall value, along with the right product features for your needs. This is why it’s so important to choose a mortgage broker who can select products from across the whole of the market.
Fixed isn’t always best
You might think that with interest rates at an all-time low, choosing a fixed-interest mortgage is a no-brainer. The benefit of a fixed interest rate is that you know exactly what your repayments are going to be. However, you could end up being worse off over the longer term. With fixed rate mortgages you will usually be tied in for a period of time, so you won’t be able to re-mortgage without paying a penalty. Also, when the fixed term expires, your mortgage will revert to the lender’s standard variable rate (SVR) which may be much higher (and you could still be locked in). The golden rule here is to consider all the possible implications of each mortgage deal you are offered, not just now but in the future. An independent mortgage broker makes this much easier.
Getting together (or breaking up)
Many mortgages involve more than one borrower – typically, a couple – and sometimes this can bring added complications. Suppose, for instance, that a man wants to move in with his girlfriend when she already has a mortgage on her flat. In most cases this will not be a significant issue, but the mortgage lender does have the right to change the rate and conditions of the mortgage depending on the new borrower’s financial circumstances (for instance, if he has existing debts or unreliable income). It is of course essential to seek legal advice on such a move, especially if the partners are not married or in a civil partnership, as the original mortgage holder has a lot to lose.
Matters can be even more complicated if a relationship breaks down. If one partner wishes to remain in the property, then the terms of the mortgage are likely to change, even if the individual can afford to repay it alone. If you find yourself in this situation, you will need to demonstrate to the lender that you can afford the new borrowing level according to their criteria. Also bear in mind that the partner who leaves may well own some of the equity in the property, which could further affect the mortgage terms (by increasing the loan-to-value ratio) as well as the residing partner’s finances. Legal advice is a must, as there can even be a stamp duty liability where there is a transfer of equity.
Final tip: beware the interest!
Although it’s tempting to add additional costs such as mortgage fees to your mortgage itself, remember that you’re paying interest on the whole of the loan. It therefore makes sense to keep the loan itself as low as possible, and pay as much as you can afford to up front.
As any house-hunter knows, finding the perfect place to live can take a lot of time and patience. So it’s worth taking a similarly careful approach to the loan you use to buy your home. The difference is, you may not have a lot of time to get it right – so instead, make use of your adviser’s many years of expertise.
If you would like to talk through your mortgage options, please get in touch or arrange a free consultation.
This article first appeared on Unbiased.