What term is sensible for my Mortgage?
The mortgage
payment term has often been 25 years, but in recent years 'flexible'
mortgages have seen many different terms, some as
long as 40 years. The length of the term will affect the total amount
of interest to be paid and the amount of your monthly payments over
the lifetime of the loan. If you have an interest
only mortgage,
the term of the investment designed to repay the loan is likely to
affect the amount of your contributions. Thus, the shorter the term,
the higher your contributions are likely to be.
Most lenders will ask to see proof that a borrower applying for
a loan going beyond the borrower's normal retirement date, can afford
the repayments in retirement as well as during employment. Be careful,
as changing the term of a mortgage can often incur extra charges,
especially if the mortgage is in the early years or has an outstanding
incentive period, for example a fixed,
capped or discounted rate.
What's the amount I can borrow?
The first step in buying a home is to find out how much you can
borrow. We will be able to tell you the amount by taking into account
your income and, if relevant, your partner's income. Although lenders
differ slightly in the amount they will lend, it is usually three
times your gross annual earnings. If it is to be a joint loan then
the lender may be prepared to lend you and your partner, for example,
two-and-a-half times your joint income. It must be remembered, however,
these are usually the maximum amounts you can borrow. Often, lenders
will subtract from the amount you can borrow, any financial commitments
you have that are fixed, for example a personal loan, car purchase
plan or credit card repayments. Lenders offer different incentives
to the borrower where certain charges can be added to the loan, for
example your legal fees or mortgage arrangement fee. Some lenders
may rebate these fees upon completion of your mortgage. Your lender
may charge you a Mortgage Indemnity Guarantee (MIG) fee if you are
borrowing an amount over a certain loan to value percentage, often
75%. Some Lenders increase this to 90% or even 95%.
What are the CAT standards for Mortgages?
'CAT standards' were introduced by the Government to ensure that
the mortgage you are choosing meets certain minimum conditions for
charges, access and terms.
As the Government does not impose CAT standards on lenders, not
all mortgages will meet the conditions. The main objective of a mortgage
being CAT marked is to ensure that the borrower has certainty over
the terms of the mortgage and that lenders won't change them without
notifying the borrower. As CAT standards are specific, some mortgages
that offer very flexible terms or special features may not meet the
standards. However, we are able to advise you on whether this is
something you should be concerned about.
In short, the CAT standard is not a guarantee, but a useful guide
to the terms of a mortgage, especially for those finding the many
choices a bit daunting!
If I miss repayments what could happen to me?
As a first action, always contact your lender if you think you may
or have missed a repayment. The lender may be able to help in a variety
of ways - in some cases by reducing or suspending repayments for
a short period or extending the mortgage term.
Your mortgage is secured against the value of your home. If you
stop or reduce your mortgage payments without the lender's agreement,
the lender may take legal action. The courts can allow the lender
to repossess your home and sell it to recover the money you borrowed
and costs. If you still owe money after the sale of the home, you
can be pursued for many years until repayment is complete.
Apart from interest, what costs could I expect on my mortgage?
The additional costs that might be incurred depend on the type of
mortgage that you choose. Below is a summary of the type of costs
that you could have:
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Mortgage Indemnity Guarantee
(MIG) |
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Where a mortgage exceeds a certain
percentage of the valuation of the property, usually 75%, you
may be required to pay a MIG fee. This fee is paid in order to
cover the lender if you cannot pay your mortgage. |
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Stamp Duty |
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The tax paid on the purchase price
of the property if the purchase
price exceeds £60,000. If the property is in one of the disadvantaged areas
specified by the Inland Revenue, stamp duty is not payable unless the purchase
price exceeds £150,000. Refer to the Mortgage
Glossary for the current stamp duty bands. |
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Solicitor's Fees |
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Accident, Sickness or Unemployment
(ASU) Insurance |
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You may decide to take out an ASU
policy to ensure that you would be able to continue to meet your
monthly mortgage payments in the event you have an accident,
fall ill or become redundant. |
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Investment Premiums |
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If your mortgage is interest only
then you would need to take out an investment policy such as
an endowment policy, an ISA or a pension in order to pay off
the loan amount at the end of the mortgage term. You would therefore
have to pay premiums into any such policy each month on top of
your mortgage interest payments. |
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Term Assurance |
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If you have a repayment mortgage,
then your lender may insist that you have adequate life cover. |
This information does not constitute financial advice. For advice
on mortgages, please contact us.
If I were to repay my mortgage early, what additional charges could
I expect to pay?
Early repayment of a mortgage may incur an additional charge known
as an early redemption charge, especially if the repayment takes
place during an outstanding incentive period. These charges can differ
from lender to lender. If you would like to discuss this in further
detail, please contact us.
I've heard something about the Financial Services Authority becoming
responsible for mortgages?
That's right. In late 2001 the Government announced the Financial
Services Authority (FSA) will become responsible for mortgages and
general insurance in addition to its existing responsibilities for
life, pensions and investments. This is expected to happen in 2004.
What is the point of taking out a mortgage protection payment policy?
There are two types of mortgage protection policy. If you've got
dependents, a life insurance just in case you die will keep the
roof over their heads. Of course, if you're single you don't need
to since
the lender can just sell the property to get its money back (unless
you're in negative equity). On the other hand, did you know that
some 134,000 repossession orders were issued in 2000 and approximately
50,000 were executed in the same period? Many of these are for
those cases where the homeowner could not keep up the repayments
because
he was out of work. So, if you become redundant or unable to work
through injury or illness, a policy to pay your monthly mortgage
expenses is just the thing.
I'd heard that the State will pay my mortgage interest. Is
this right?
Yes - and No. The State will pay a standard amount towards your
mortgage interest after a waiting period - provided you qualify
for income support. This means you need savings of less than £8,000!
And the waiting period, unless your mortgage started before October
1995, is 9 months. Further information on Income Support for Mortgage
Interest can be found in the section on Mortgages.
What is negative equity?
Sometimes the value of your property can be less than the amount
of your mortgage. This is termed 'negative equity'. There was a period
in the 1990s when negative equity was extremely common as house prices
fell sharply when interest rates rose to double figures.
Don't forget that you can contact us to answer specific queries
or arrange an appointment to discuss your personal circumstances.
Authorised and regulated by the Financial
Services Authority (reg. no. 135181).
YOUR HOME IS AT RISK IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR
OTHER LOAN SECURED ON IT.
Written quotations available on request. Loans subject to status and only
available to persons aged 18 and over. Loans are secured on your property
and a life policy may be required. |
Hedgelands Financial Services Ltd, Hedgelands, Abbotskerswell, Newton
Abbot, TQ12 5PW
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Telephone
0845
165 1280
General Insurance
0845 165 1281
Fax
01626 332622
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