Your home is the biggest financial commitment you will ever make. With so much choice in the market, this can be very confusing. Below, you will find answers to the most frequently asked questions on mortgages and home insurance.
A mortgage is the name given to a loan secured on property. It is usually used to buy the home although it is becoming more popular to consider a new mortgage, where the property is already owned, to access a more competitive mortgage product or to raise capital for other purposes, such as school fees or business investment. You may have to pay an early repayment charge to your existing lender if you remortgage.
A mortgage is a long-term loan and has traditionally run for a fixed period, typically 25 years. However, most mortgages are flexible enough to allow for early repayment or, if your circumstances dictate, the term can be extended beyond the original loan period.
Mortgages were once the preserve of building societies and the high street banks, however recently far more competition has entered the market and there is now a raft of lenders offering mortgage loans on residential property. This expansion in the number of lenders has lead to a vast array of different loan packages.
Nowadays there are loan deals to suit most people's needs, whether you are buying your first home, a retirement cottage or perhaps an investment property.
Also known as a Repayment or Capital & Interest mortgage. Your repayments pay off the interest and part of the capital borrowed each month. There is a set term in which you will clear the entire mortgage amount.
Your repayments only repay the interest on your mortgage. You are responsible for the repayment of the capital when the mortgage reaches the end of the term.
This type of loan is cheaper than the Standard Variable Rate at the start of your mortgage and allows you to take advantage of the discount for a set period of time at the beginning of your mortgage. An early repayment charge may apply if the mortgage is repaid during the discount period.
The rate of interest on your mortgage is fixed for a set period of time at the beginning of your mortgage. Fixed rate mortgages are suitable for those who want to budget and prefer to know exactly what their monthly outgoings will be. If interest rates increase the fixed rate will remain the same and if the interest rates increase you are in the knowledge of not worrying about your repayments going up during the period of the fixed rate. An Early Repayment Charge may apply if the mortgage is repaid during the fixed period.
Your mortgage interest rate is linked to the Bank of England base rate for a set period. So if the Bank of England rate goes up so will the rate of interest you will have to pay on your mortgage, but if the Bank of England rate falls so will your monthly repayments.
This type of mortgage is designed to accommodate your changing financial needs. It may allow you to overpay, underpay or even take payment holidays. You may also be able to make penalty free lump sum repayments.
Your current income (which includes commission, bonuses, overtime - i.e. any additional money that is subject to tax) will determine how much you can borrow. Some lenders calculate borrowing ability by a straightforward multiple of your income while others will work out your net disposable income and then allow you borrow a percentage of that. We will help you calculate how much you can borrow.
Yes, all lenders have different lending criteria, however you can borrow to fund the cost of building a property, subject to income. If you are looking to buy a site to build your dream home on then this could be the way to do it. The maximum loan for this is up to 90% of the valuation and the funds would be released in stages.
(1) Fees & Charges
There are some standard fees and charges that you will come across, these will be explained fully to you by your Mortgage Advisor before any decision is made to proceed with a mortgage.
All lenders require a Valuation to be carried out on your property to confirm its market value (as opposed to its structural soundness).
This is done for the lender's benefit, to confirm the property is adequate security for the loan. It should tell you if there's something seriously wrong with the property, but it doesn't involve a detailed inspection.
This would usually only apply to a second-hand house and consists of a complete and thorough inspection of the property by a qualified Surveyor or Engineer. It is not compulsory but recommended if the property has not been well maintained or if you have any doubts whatsoever about the soundness of the house you are thinking of buying.
The cost of this survey, which can range quite a bit in price, is borne by you and is non-refundable in the event you do not go ahead with an offer for the property. However, it may highlight expensive repairs that, if not turning you off the sale, could help with negotiations on the purchase price.
Higher Lending Charge
This is a lender insurance that protects the lender against loss in the event of repossession or a fall in property prices where the loan amount owed exceeds the sale price of your property. It is normally applied where the loan is in excess of 75% of the purchase price and is only applied to the loan amount over that threshold. Not all lenders charge this insurance.
(2) Legal Fees & Outlay Costs
Costs now vary as solicitors are becoming more aware of competition. On top of that, you will bear all outlay costs. These, again, will vary depending on whether your deeds are registered with the Land Registry or Registry of Deeds. Ask your solicitor to outline all costs to you at the outset. Your legal fees will amount to a substantial sum so it is well worth shopping around for a competitive solicitor. We can advise you of the solicitors in your area who will be competitive with fees, if you do not have a family solicitor. Please ask a member of our staff to advise you with regard to legal costs and they will be glad to help you.
Life cover provides a lump sum if you die during the policy term which can help pay off your mortgage. Therefore your family will not have to worry about repayments on your mortgage.
Critical Illness Cover
Critical Illness Cover is designed to help cover those critical illnesses which could have a severe impact on your lifestyle. It could pay out if you are diagnosed with one of the specified critical illnesses or disabilities listed on the policy or on death during the period of cover and you are eligible to claim. We can arrange cover for you so should you be diagnosed with a specified critical illness you could use the lump sum to help pay expensive medical costs or repay your mortgage.
Accident, Sickness & Unemployment
Accident, Sickness & Unemployment is a short-term income-protection policy. It pays you a tax-free monthly benefit for up to 12 months if you can’t work due to an accident or sickness or if you become unemployed through no fault of your own. You can choose a policy that protects you against all of these events, or you can choose a policy to protect you against accident and sickness only, or unemployment only.
You choose the ‘deferred period’ – this is the initial period of your claim and you get no benefit during this time. You can choose a deferred period of 30, 60 or 90 days for accident or sickness and unemployment options. You can also have a longer deferred period of 180 days for accident and sickness cover. We can help you decide which deferred period is best for you and we will review your circumstances and consider issues like any sick pay you get from your employer or any savings you have.
You can choose the amount of monthly benefit you will receive, which can be up to 65% of your gross monthly income (up to 65% of your wages before income tax and National Insurance contributions have been taken). There are limits to the cover provided and Legal & General won’t cover some circumstances. Please check your policy document or contact us for details.
Accident, Sickness and Unemployment Cover typically costs £4.71 a month for every £100 of monthly benefit. This is based on a 36-year-old customer choosing £850 of accident, sickness and unemployment monthly benefit with claims paid after a 30-day deferred period.
The cost of this insurance depends on a number of factors, such as your age, where you live and your occupation. As a result, the cost you will pay is based on your own circumstances.
There are other providers of Short-Term Income Protection and other products designed to protect you against loss of income. For impartial advice about this type of insurance, please visit the website www.moneyadviceservice.org.uk
This will cover items that cannot be removed if you move home. These include the property structure such as roof, walls, windows and permanent fittings.
This will cover your household goods, personal posessions and valuables within the home.
The answer to that depends on your own personal circumstances. If interest rates going up would leave you uneasy and feeling under pressure, it may be best to fix your mortgage for peace of mind. The benefit is that your monthly mortgage repayments are fixed for the duration of the fixed term so you can plan ahead without fear of rising mortgage repayments. At the end of your chosen fixed rate term, you will normally revert to the lender's current variable rate but you may be able to choose another fixed rate from the selection available at that time. You may have to pay an early repayment charge to your existing lender if you repay your mortgage within the fixed rate period.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Typically we do not charge a fee for mortgage advice, however if we do, depending on your circumstances, it will be a maximum of £250.
As with all insurance policies, conditions and exclusions will apply.
The Mortgage Shop (N.I) Ltd is an Appointed Representative of Stonebridge Mortgage Solutions Ltd, which is authorised and regulated by the Financial Conduct Authority Registered Office: The Mortgage Shop (N.I) Ltd, 132 Great Victoria Street, Belfast. BT2 7BG. Registered Company Number: NI26842. Registered in Northern Ireland.