Getting A Fair Deal On A Mortgage

Introduction

Buying a home for the first time or moving can be a very exciting time. It can also be very stressful. The chances are that you will need a mortgage.

Before you decide which mortgage would suit you best, here are The UK Insolvency Helpline's mortgage team suggests you should ask, based on information from issues which have caused problems for consumers.

How much can I afford to borrow?
How can I tell which mortgage rate is best for me?
What is the best type of mortgage for me?
How should I repay it?
Can I make lump sum payments to reduce the size of the loan?
Are there any redemption penalties?
Does this mortgage come with compulsory insurance?
What other charges will I have to pay?
What happens if I can't pay?
What about the small print?

Further Suggestions

If you have any suggestions as to other questions that you have found were important for you, we would be interested to hear at mortgageadvice@insolvencyhelpline.co.uk

Q1. How much can I afford to borrow?

What will I have to pay out each month?
If I take a mortgage with a low interest rate to start:
- what will be the rate at the end of the fixed period?
- what would my payments be now if I were paying that rate?
- what would the payment be if the the interest rate were higher/lower than it is today?
What fees will I need to pay to get your mortgage?

Other Information

If you choose a fixed rate remember the rates will usually go up at the end of the fixed period. Make sure you will be able to afford the repayments at the end of the fixed period even if interest rates rise. The lender may want to charge you extra if you want to switch to another fixed rate at the end of this one.

Most lenders will lend you an amount based on your salary (and partner's). Don't forget you will have to pay other costs involved in buying a home - the valuation fee and perhaps a structural survey fee, a fee for additional security arrangements if you want to borrow a high proportion of the property price, legal expenses, stamp duty, Land Registry fees and the costs of moving in.

Q2. How can I tell which mortgage rate is best for me?

What is the Annual Percentage Rate (APR) on this mortgage?
- now?
- what will happen to the rate you have advertised once the discount period (if there is one) ends?
Do you work out interest every year or every day?
Does your interest rate change when the Bank of England base rate changes? Or does it follow some other rate?
- Do you change yours straight away or wait?
- Have you implemented the full interest rate change from last time?

Other Information

You should shop around for the best deal. The APR should help you do this. Generally the lower the APR, the better the deal but watch out - some lenders advertise mortgages as if the initial low start rate will last throughout the loan when in fact it is almost certain that it will increase once the discount period has ended. Nor does the APR take account of redemption penalties.

If interest is worked out every year rather than every day you pay interest on money you have paid back (if you have a repayment mortgage).

Some lenders do not pass on the full amount of savings when the Bank of England cuts interest rates straight away (equally, the lender may not pass on the full increases in rates, or at least not straight away). It is unlikely that the lender will give you a definite answer on this one, but it is worth seeing what they say.

Q3. What is the best type of mortgage for me?

Ask what the jargon means:
- what does fixed rate, variable, discounted/low start, flexible mean?
Will this mortgage suit my circumstances now and in the future (describe them)?
- exactly how will it do so?
- is a 25 year mortgage the best one for me in those circumstances?
How flexible will the mortgage be if my circumstances change?
- can I increase, decrease or suspend payments if I need to?
- if so are there any limits on what I can do?
- are there any penalties?

Other Information

There are many different types of mortgages available. If you know now that you want to pay less or more in some months or that you may need to miss a few payments seek a loan that will allow you to do this without penalty.

If you know that you can pay more towards your mortgage than your lender is asking see what the payments would be if the mortgage is over 20 years rather than the usual 25 - it could save you a lot in interest payments.

Q4. How should I repay it?

Ask the salesperson:
- why are you trying to sell me an endowment policy (or a pension or an ISA)?
- why is it best for my circumstances?
- what commission are you being paid?
- what will I have to pay in total each month?
What would be my monthly payments for a repayment mortgage?

Other Information

You can go for a straightforward repayment loan in which you pay off part of the debt as well as interest each month so the amount of your debt gets smaller. Or an interest only loan in which you pay the interest each month to the lender and contribute to an endowment, ISA, or personal pension. These produce a lump sum which is then used to repay the capital, but there is always a risk that it may not be sufficient and you are left owing the balance. It can be the case that lenders present an outdated picture of endowment policies.

You can also get mortgages that are a mixture of the two repayment methods. If you've already got an endowment plan, ISA, or personal pension, you may want to use these to help repay any new mortgage. This may be a better option than cashing in the plan and buying a new one.

Q5. Can I make lump sum payments to reduce the size of the loan?

Are there any limits on how much I can pay in one go?
Do the payments have immediate effect?
If I make them during any tied period do I have to pay any penalty?

Other Information

Some lenders will not let you make lump sum payments unless you pay quite a lot in one go. Some lenders do not take these payments into account until the end of the year, which means you are still paying interest on the original debt, even though you've paid some of it off. Some lenders will charge a redemption penalty.

Q6. Are there any redemption penalties?

What will I have to pay if I want to switch to a mortgage offering a better deal?
- (If you are given a formula) What will the actual cost be?
What will I have to pay if I want to switch to a mortgage offering a better deal?

Other Information

You may wish to pay off the loan early, for example if another lender is offering a better deal. Ask whether there are any penalties, how long they apply for (for example how many years once a low start up rate of interest ends) and what the actual cost would be for you (don't accept a formula). Ask the lender whether it will let you switch to one of its other deals without penalty, once your initial special deal period ends.

Q7. Does this mortgage come with compulsory insurance?

To get the deal you are offering me, do I have to buy insurance from you?
- what will it cost me?
If the insurance is not compulsory, can I arrange it (or the endowment, ISA or pension) with another company?
- if so, will I have to pay anything to you?
- how much will you charge me?

Other Information

This may include insurance for the building and its contents. If it does compare what the lender is going to charge you with quotes from another insurance company. The cost of compulsory insurance can be more than you would save from a lower than usual interest rate.

Q8. What other charges will I have to pay?

Will I have to pay for a Mortgage Indemnity Guarantee (MIG)?
- how much will it cost?
- do I have to pay it upfront?
What other charges do I have to pay? (If the fees are part of getting the mortgage)
- how much will it cost?
- do I have to pay them upfront?

Other Information

A MIG is normally required when you are borrowing a large percentage of the value of the property. It is designed to make sure that the lender is paid, if you don’t pay the mortgage. Most lenders will ask for the money as part of the mortgage deal. Some lenders will suggest that they add the cost of the MIG to your mortgage. This will mean that you would pay interest on it for the whole lifetime of your mortgage. You should also know that the MIG protects the lender, not you. The insurance company may still ask you to make up any payments you miss.

Some lenders will charge fees for fixing your mortgage, or for a particular type of mortgage. Fees may be very high if you have a poor credit record. Some lenders will suggest that they add these costs to the mortgage. This will mean that you would pay interest on these fees for the whole lifetime of your mortgage.

Lenders have a variety of charges that they may make during the lifetime of your mortgage, for providing a reference, for loaning the deeds to a solicitor, for returning the deeds to you etc. Make sure you are happy that these are reasonable.

Q9. What happens if I can't pay?

How much will you charge me for monitoring the loan if I fall behind with my payments?
How soon would you seek repossession if I don't pay for a few months?
If I hand in the keys and you sell the property for less than the debt I owe you, how long will you chase me to make up the difference?

Other Information

Some lenders charge very high fees if you fall behind with payments. This will make the amount of your debt rise very quickly and make it more difficult to pay off.

Lenders have the right to come after you for many years after they sell the property. They will charge interest on the difference and may levy other charges so the amount could be much more than you expected.

Q10. What about the small print?

What does this term mean?
What does this mean I will have to pay?

Other Information

Ask about any terms you are unsure of. Take the small print away and read it again. See if there are answers to these questions in the small print and compare them with what the lender has told you. If anything seems wrong go back to the lender or ask someone else to look at it for you.

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IVA's

The IVA Guide
The UK Insolvency Helpline has put together an IVA Guide based on the enquiries and questions that we receive at our helpline offices.

In the guide we cover such subjects as IVA Approval, early settlment of your IVA, missed IVA payments, IVA failure, additional debt claims and much more.
[click here for IVA Guide]

What is an IVA?
The IVA is an extremely powerful tool enabling you to clear your debt and return to a clean financial bill of health. Visit The UK Insolvency Helpline's Guide to Individual Voluntary Arrangements (IVAs).
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Getting A Fair Deal On A Mortgage

Introduction

Q1. How much can I afford to borrow?

Q2. How can I tell which mortgage rate is best for me?

Q3. What is the best type of mortgage for me?

Q4. How should I repay it?

Q5. Can I make lump sum payments to reduce the size of the loan?

Q6. Are there any redemption penalties?

Q7. Does this mortgage come with compulsory insurance?

Q8. What other charges will I have to pay?

Q9. What happens if I can't pay?

Q10. What about the small print?

Mortgtage Providers

ENQUIRY FORM

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