Making the most of your mortgage
Whether you are buying a new home or rearranging your existing mortgage, there are thousands of mortgage products now available from hundreds of lenders. So how do you ensure you are getting the deal which best suits your circumstances? Should you be looking at a fixed, tracker or discounted rate? Do you need to borrow 95 or 100%? Would an offset facility benefit you? These are just a few of the questions which need to be considered. And the list of mortgage features seems to expand as time goes on.
Unfortunately, most of us find it difficult to predict the future. However, several things need to be considered before entering any mortgage agreement. Firstly, how long you expect to be in your home before moving can become an issue if there are any Early Repayment Charges (ERC) as a condition during the early years of your mortgage. Although these can result in fairly costly penalties, most lenders now allow you to transfer any outstanding mortgage deals to a new property if you move.
Secondly, consideration needs to be given to possible interest rate movements and how these may affect you. Rates such as tracker or discounted rates allow you to benefit if there is any reduction in interest rates but do not protect you in the event of rate increases, whereas fixed and capped rates do.
Other things to be brought into the equation are up-front application and booking fees charged by the lenders. Nowadays, these fees seem to be charged on most loans but many lenders will now allow you to add them to your borrowing if you do not wish to pay them straight away.
With the property market remaining very competitive, people are having to bid above the valuation price to secure a property, and therefore find themselves needing to borrow a higher percentage of the property’s value than they may initially have intended. Fortunately, more lenders are now becoming sympathetic to this situation and are lending a higher Loan To Value (LTV) than was previously available. In some cases they will consider 125% LTV. This is achieved by providing a mortgage for 100% of the property value together with an unsecured loan for the additional borrowing which runs for the same term as the mortgage.
With property prices rising faster than wages, it is becoming increasingly difficult for first-time buyers to get a foot on the property ladder. This is not helped by the traditional method of calculating how much can be borrowed based on a multiple of someone’s earnings. Thankfully there are an increasing number of lenders who are moving away from this method, and instead are basing how much can be borrowed on an affordability basis. To do this they look at your income and regular outgoings such as loans, hp, credit card payments etc.
In most cases the amount that can be borrowed is greater than the amount you would have been entitled to had the traditional method been used. Care should still be taken because, although you may be able to borrow more, you still have to be comfortable with the repayments.
Occasionally, people find themselves in the fortunate position of having surplus funds available from varying sources and wish to put these towards reducing their outstanding mortgage balance. This can often be done easily and without penalty.
However, the problem comes if these funds are then required for any other reason, as an application would need to be submitted to release these funds. There is no guarantee that this will be granted, therefore many lenders are now offering an offset facility which is ideally suited in such a situation.
Your surplus funds would be placed in a deposit account, which is often instantly accessible should you need to make a withdrawal, and offset against your outstanding mortgage balance. Interest would only be charged on the net amount of your offset facility and, as you will keep up repayments based on the full loan amount, this would result in your mortgage being repaid early. The example in the table above gives you an idea of how this facility works.
As you will no doubt be aware, these are only a few of the areas that will need to be considered before deciding which lender offers the best terms for you. To ensure you get the best mortgage available, you should consider consulting an independent financial adviser.
Kenny Findlay is managing director of Independent Medical Financial Solutions Limited. For a free initial discussion, ring the company on 0845 450 5025.