9th Jan, 2017
The big wide world of mortgages can be an extremely confusing place, especially when you’re a first-time buyer. From the terms that industry professionals use, to knowing the difference between an advisor and a lender – it can all become a bit overwhelming.
So, together with our mortgage expert Samuel Bull, we’ve put together a ‘mortgage 101’ guide, to give you a helping hand.
Is there a difference between a broker, an advisor and an intermediary?
No, an advisor, intermediary and broker are the same person – an individual who can help you arrange your mortgage, through a lender.
So why should you consider using an advisor?
Well, choosing a mortgage lender is a bit like choosing a garage to purchase a new car – you don’t know who can give you the best deal, unless you spend hours or even days of time comparing prices.
And, making the wrong choice about your mortgage can cost you hundreds or thousands of pounds more than you need to pay. So, it’s really important to select the right lender.
That’s why most people go through a broker – because they’re the people who understand the market. They can help you find the best offer, advise you on what type of mortgage you should have, and save you heaps of time.
If you want to use an advisor, but are unsure of what you should be paying them, then it would be fair to say that you could expect a fee of somewhere between £500 - £1,500, or 0.35% - 0.8% of the total loan value.
Not only do you have to consider whether to use a mortgage advisor or not, but there are also different categories of product available. The main two are fixed and variable-rates, but there are other types too. Read below for more information:
The mortgage interest rate remains the same for the initial period of the deal, which is typically one to 10 years. This means you’ll have the security of knowing exactly what you will be paying on your mortgage each month and can plan your finances around that.
The interest rate on your mortgage can go up – or down – according to your lender’s Standard Variable Rate (SVR).
With this type of mortgage, your lender returns a certain amount of money – usually around £1,000 – to you on completion. This is an incentive to draw in potential clients, so you should factor this into the total cost of your mortgage to decide whether it’s a good deal overall.
A flexible mortgage deal allows you to overpay, underpay or even take a payment holiday from your mortgage. This can help you pay off your loan early and save money on interest, but flexible mortgages are usually more expensive than conventional ones.
You only pay the interest on your mortgage each month, without repaying any of the capital loan itself. The idea is that you build up enough money to be able to pay off the mortgage at the end of the term in other ways, such as investment in stocks and shares or property.
What are the pitfalls of securing a mortgage?
We’ve compiled a list of things that could hinder your chances of obtaining a loan. Have a read below and see if any apply to you:
Being self-employed or a contract worker – if you have erratic or unsecured earnings then you may struggle to get a mortgage immediately. If you work for yourself, for example, then you may have to build up three years of accounts before applying.
Childcare costs – as playgroup and childminder costs rise, lenders now assess what impact this has on your take-home earnings. This will affect how much you can borrow.
Commuting costs – if you travel on the train to or from home, then this will count against you – after all, season tickets are not cheap!
Pension contributions – some lenders will deduct your monthly retirement savings from the amount you can borrow
Future financial commitments – if you are planning to take maternity leave in the near future, for example, then some lenders will consider this.
There are many technical terms that industry professionals may use, from APR to SVR. Here are the most common ones, to get you clued up:
In other words, this is the ‘Annual Percentage Rate’ – the overall cost of a mortgage per year, including the interest and fees.
The base rate is set by the Bank of England, and currently 0.25% – the lowest in history. Tracker mortgages and standard variable rate mortgages usually follow this tariff.
Early Repayment Charges (ERCs)
If you want to leave your mortgage earlier than specified in the initial deal, then you will usually incur a penalty fee.
A guarantor is a third party who agrees to meet the monthly mortgage repayments if you are unable to. This is most common with first-time buyers, and the guarantor is usually their parent or guardian.
The amount you pay your mortgage lender each month.
A contract which outlines the legal obligations of the home owner and the rights the lender has if the borrower fails to make a repayment.
When the value of a home falls below the amount left to pay on its mortgage.
When you change your mortgage lender or type, without moving house. For example, this may be to release equity from your home, or to save money.
Standard variable rate (SVR)
The SVR is the standard rate that a mortgage lender will charge after your initial mortgage period ends, and could be higher or lower than the original rate.
If you’re looking to purchase a home and get a mortgage, there are many things to consider, but if you have any specific queries, then get in touch and, together with our mortgage advisor, we can help!
Phone: 01484 682999
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