A guide to mortgages
By Regency Residential • July 25, 2017 •
In order to buy a home, you may require borrowing money from a lender. Often this process can appear complex, but in fact, there are only some basic things you need to take into consideration.
These are the main considerations when applying for a mortgage:
What Is A Mortgage?
Understanding the different types of mortgages available and the mortgage process can help you know when you might be ready to reserve a property or make an offer. There is a wide range of borrowing products and mortgages available to pay for a home. In fact, there are hundreds of types of mortgage products and several mortgage types depending on your circumstances. Getting a mortgage will be one of the biggest financial decisions you’ll make, so it is important to get it right.
This guide aims to help you decide where you can best source helpful advice from mortgage specialists and advisors.
There are many mortgages on the market and they are very competitive so it can be hard to understand what is on offer. It is a good idea to get advice from your bank as well as a number of independent mortgage advisors before coming to any decisions. An independent mortgage advisor is a specialist with in-depth industry knowledge of the industry. They’ll look into a range of mortgage products made available by the different lenders to find you the best mortgage to suit your needs at your budget.
What To Look For In A Mortgage
It is important to understand all factors associated with a mortgage product, it is not always a case of looking for the lowest interest rates but elements that will benefit your needs.
There are other factors which also contribute to the total amount you pay back to the lender over time.
(Annual Percentage Rate of Change) takes some mortgage fees into account as well as the interest rate and expresses it as a percentage.
The higher the deposit you put down the lower the interest rate you are likely to get.
The Standard Interest Rate:
Your mortgage will switch once your fixed rate deal ends.
The Frequency Of Interest Charged:
Daily interest tends to work out cheaper, however, there are options to pay it monthly or annually. will it be paid daily, monthly or annually? Daily interest works out cheaper.
Would you like to have the flexibility of being able to overpay your mortgage or being able to take a break from making payments without being charged.
Length Of Fixed Rate Vs. Variable:
Are you happy with having an interest rate that is fixed for a long period or would you like to have more flexibility? Charges will be issued if you choose to switch your mortgage deal before it ends.
Lenders and financial advisors are closely regulated and when they recommend a mortgage to you they must offer advice. When recommending a mortgage they will assess your income in order to establish your ability level to meet mortgage repayments. Mortgage advisors will look into your day-to-day spending. The process is there to protect you and to ensure you purchase a mortgage that suits your needs.
Despite the fact that mortgage advisors and lenders must offer advice, you can choose to reject advice and find your own mortgage deals based on your research and decision process.
Choosing to apply for a mortgage without advice is called an ‘execution-only’
application. Getting advice when moving forward with a mortgage will enable you to have more rights if the mortgage turns out to be unsuitable for your needs. If it came to a stage where you needed to make a complaint regarding your mortgage then you could make a complaint for financial miss-selling if the advice you were provided with turned out to be unsuitable for your circumstances.
If you don’t take advice then you take full responsibility for your mortgage decision. You could therefore potentially end up with a costly mistake in the long run.
If you don’t understand restrictions properly when applying for a mortgage then you can potentially be rejected by your chosen lender.
Reasons To Use A Mortgage Advisor:
-They have vast experience in completing mortgage paperwork and therefore will be able to complete your application faster
-They will assess your finances to see if you can afford a mortgage
-The advisor will have access to exclusive deals with lenders which are not otherwise available to the general market
-An advisor will help you understand the costs and features of a mortgage that go beyond just the interest rates
-They will only advise you on a mortgage that they believe is suitable for you and will inform you on which mortgage you are likely to get
Mortgage Advisor Fees:
Mortgage brokers might charge you depending on the service and product you choose. In some cases, other advisors will be free to you but they’ll receive a commission from the lender.
Typical Mortgage Fees:
There are some upfront fees that you must consider in addition to mortgage costs. Mortgages can vary therefore ensure you take into consideration all fees in addition to the interest rate. Typically you will pay interest on the capital you borrow and possibly other charges as well. These include solicitor’s fees for the purchase, insurance for the property and sometimes but not always, ground rent. In order to not pay interest, it is recommended to pay the fees upfront rather than adding them to your mortgage as you’ll pay interest on the fees applied for the length of the mortgage.
A booking fee of £99 – £250
An arrangement fee of up to £2,000
A mortgage valuation fee (typically £150 or potentially more)
How much can you afford to borrow for a mortgage?
Before applying for a mortgage, you need to think about more than just whether you can afford the monthly repayments. Mortgage providers will look at your income and outgoings to see if you can keep up with repayments if interest rates rise or your circumstances change.
There are some major upfront costs that also need to be factored in when deciding whether or not you can afford a mortgage. You’ll need to ensure that you have enough money saved to cover all the costs demanding by a mortgage product.
Below is an overview of costs you are likely to incur when buying a home
Is a government tax paid on homes sold at £125,001 or more. As of April 2016, for people who are purchasing a second home, there has been a 3% increase for those buying a second home or buy-to-let property.
This is the amount you put towards the cost of the property when you buy your home.
Mortgage lenders will need to value of the property you will be lending against this is to establish how much the lender is willing to lend to you against the value of the property. Typically, a valuation fee can cost anything between £150 – £1,500 based on the property’s estimated valuation. The valuation conducted by the lender will not encompass a full structural survey so the valuation may not identify areas where repairs or maintenance that might be needed to be done. The full report is conduction by a surveyor – mentioned below.
Before you buy a property it is vital that you get the property checked by a surveyor. Any potential issues will be flagged up by the surveying report. The extent of the report is dependant on your requests and the lender’s requests. There is a range of surveys, from a basic ‘Home Condition Survey’
(around £250) to a ‘Full Structural Survey’
(around £600). When considering the period of time you are likely to live at your new home and the potential money you could save on repairs in the long-run then it pays to conduct a good survey.
It is the norm to need a solicitor or licensed conveyor to carry out all legal work when buying and selling your home. Legal fees can differ vastly depending on the law firm and the level of work needed to be conducted. Some of the work will also include; local searches to find if there are any plans in place that may cause an issue for you.
Electronic Transfer Fees:
Is the lender’s fee for transferring the mortgage capital from the lender to the solicitor.
Estate Agent Costs:
These are costs incurred by the seller to cover the costs of the estate agent’s services. Typically these costs range from 1% – 3% of the sale price plus 20% VAT.
The lender will require you to take out buildings insurance to protect your new home against damage from floods, fire, subsidence and anything else that may cause damage to the property.
If you purchase a leasehold property then you will have to pay ground rent and service charges to the company that own the freehold. Service charges and ground rent admin fees are dependant on the property. Leasehold costs are an important factor when running a property so it is important that you do your research into charges demanded by the freehold owner.