Mortgages Personal Finance

Ten Questions You Should Ask Your Mortgage Lender

A mortgage is not something that should be entered into lightly. Any borrower should be sure to conduct careful research before selecting their lender of choice.

Here are ten key questions you need to ask your lender or mortgage advisor before committing to a new mortgage.

1. What different repayment methods are on offer?

Mortgage repayment methods come in several flavours: capital and interest, interest-only, endowment mortgages, ISA mortgages, and pension mortgages. Not every lender offers every method of repayment, but it’s worth confirming which products they do provide, to compare their respective merits.

2. What is the interest rate that is charged on this mortgage? For how long does it apply?

A key component of any mortgage product is the interest rate. Many lenders will include an incentive period, during which their base interest rate will attract a discount, or be either fixed or capped to a certain level for the duration. Both the amount and the duration of this initial period are important considerations for any borrower.

3. What happens once I reach the end of my incentive period?

Most lenders expect your mortgage to revert to their variable base rate of interest once your incentive period has expired. Some may allow you the opportunity to arrange a further fixed, capped, or discounted period to keep your custom. Knowing what will happen to your subsequent payments is important to your future financial stability.

4. How much can I expect to pay each month on this mortgage?

It might seem an obvious question to ask, but it’s so essential that it needs pointing out! Not only should you confirm your monthly repayments during the incentive period, but also what they will be once you revert to the lender’s base variable rate.

5. Does the mortgage include any early repayment penalties?

Most borrowers look for a certain amount of flexibility in their mortgage, especially when it comes to the possibility of paying it off early.

Many mortgage products include an initial period where the mortgage is either discounted, fixed, or capped and it is not unusual for the borrower to attract penalties if they repay the debt during this period. It’s important to confirm any early repayment penalties at the outset, and to be wary should such penalties be applied beyond that initial period.

6. Does the mortgage application include an arrangement fee? If so, when does it need to be paid and will it be returned?

Some mortgages attract an arrangement fee and you need to know if yours is one of them. If so, you will need to confirm how and when you are expected to pay it. There are several possibilities: some lenders expect the fee to be paid upfront at the time of application; others deduct the cost from your advance cheque once the mortgage completes and others will include the fee as part of your debt, to be paid off during the lifetime of the mortgage.

If your lender expects an upfront payment, be sure to confirm whether they will refund it should the application fail to proceed. Certain lenders keep hold of the fee, even if they subsequently decline the application, making it essential that you are aware of this possibility from the outset.

7. If I decide to move house, am I able to transfer my mortgage to the new property?

These days, few of us stay in the same property for the duration of our mortgage. Some lenders are prepared to let you transfer your existing mortgage to your new home (subject to the usual valuations and so on). This can be very useful, but it’s important to understand what restrictions and penalties might apply if you choose to do so – particularly if it happens during your initial incentive period.

8. Are there any other conditions that come with the mortgage?

It is true to say that there is no such thing as a ‘standard’ mortgage. While you will be presented with a detailed legal document towards the end of the process, it is important to clarify upfront whether the product you have chosen includes any hidden extras or compulsory conditions prior to application.

9. Will I have to take out my buildings and contents insurance with the lender?

Speaking of conditions, it is not unusual for a lender to insist that you take out your buildings and contents insurance through them. While you are not legally obliged to do so to secure a base-rate mortgage, it may be a condition if you wish to benefit from an attractive incentive period.

10. Does your mortgage advice cover the whole market, or is it limited to certain preferred lenders?

This last question is aimed more at mortgage advisors and brokers than lenders. Under the Financial Services Act, your advisor is obliged to inform you whether their selection of mortgage products is representative of the entire market or chosen from a cache of preferred lenders.

Armed with these questions, you should find it easier to navigate the minefield of finding the right mortgage for you. If nothing else, they will give you a clearer indication of what it is that you are signing up for.

Loans Personal Finance

Seven short-term loan myths debunked

The short-term loan industry is often shrouded in mystery and confusion. This is due to false assumptions doing the rounds, as well as dated information stemming back to the time before strict regulations came into force. Here are some of the most common short-term loan myths debunked.

1. Short-term loan providers are rogue traders

There’s a common belief that those businesses that provide short-term loans are dodgy traders out to fleece their clients. While there may have been sharks operating in the industry in times gone by, this is no longer the case. The short-term loans sector is now heavily regulated by the Financial Conduct Authority (FCA), which means that lenders need to adhere to strict rules with regards to how they operate, while also offering complete transparency.

2. Expect hidden fees when you take out a short-term loan

People incorrectly assume that if you take out a short-term loan, the provider is in business to catch you out with hidden fees and extra expenses you hadn’t bargained for. They believe that this is all designed to trap you into a vicious cycle of debt. The reality is somewhat different, however. Since the industry is strictly regulated, loan providers are obliged to lay out all of their fees and terms and conditions, so that everything is 100% clear and transparent. Plus, once you have taken out a short-term loan, you can’t be sprung with new conditions or further fees.

It is only those people who fail to fully read the terms and conditions of their short-term loan contract who are often met with unexpected costs and conditions they hadn’t accounted for.

3. Expect high-interest rates

Many people are extremely wary of short-term loans as they think that the very high-interest rates and charges will catapult you into a never-ending cycle of debt. But, this isn’t necessarily the case. While you can expect to pay more interest for the convenience of a short-term loan compared to other loans (and also because this type of loan isn’t secured against any assets), fees and rates can actually be more affordable than you might think.

Crucially, regulations are in place to ensure that borrowers don’t get exploited. For instance, price caps mean that you won’t repay double what you have borrowed. Lenders are out to help you, where they’ll also supply you with information regards managing debt so that you have advice to hand should you need it.

The only time that costs might start to spiral out of control is if you fail to repay the loan back.

4. Expect to get hounded for repayments

Think of short-term loans and often the unscrupulous dealings of loan sharks might come to mind, but the two certainly don’t go hand in hand. If you’re worried about being hounded for repayments, with providers issuing threats or dodgy tactics to make you cough up, then you need to think again.

Regulations ensure that short-term loan providers are not allowed to employ underhand tactics to make you pay. Indeed, your repayment plan will be detailed in your contract so you know exactly when you need to pay and how.

However, if you do have any issues with repayments, it’s wise to contact your provider sooner rather than later. Additionally, if you do feel that you are being treated unfairly by a loan provider, contact the Financial Conduct Authority or Trading Standards for advice.

5. Anyone can get hold of a short-term loan

While it’s true that short-term loans tend to be easier to acquire than other loans, there’s no guarantee that anyone can get one. Before the industry was regulated, it was certainly easier to obtain such a loan, but this is no longer the case. Short-term loan providers need to rigorously scrutinise every application they receive, making sure that each applicant is capable of paying the loan back. Only then will the loan be approved. Indeed, since stricter regulations have come into place, the number of short-term loan application rejections has increased. This is to safeguard both the consumer and the loan provider.

6. Short-term loans are bad news for your credit rating

Many people shun short-term loans as they worry that they’ll adversely impact their credit score, but this isn’t necessarily true. In fact, if you show that you are a responsible borrower and can pay the loan back on time, this can have a positive effect on your credit rating. It is only those borrowers who fail to keep up with repayments that will notice their credit rating worsen.

7. Short-term loans are only for very poor people

There is something of a stigma regarding short-term loans. They’re often viewed as a bit of a seedy form of financial means for those who are extremely poor or in a financial mess. This isn’t actually true. Indeed, people of all walks of life take out short-term loans with studies showing that you’re more likely to acquire this type of loan in the UK if you’re middle class!

Short-term loans are typically used in emergency situations or when unexpected expenses crop up that you haven’t budgeted for. People often take out a short-term loan to tide them over until they get paid or when other funds become available. In fact, in order to get a short-term loan application approved, you already need to be in employment, so it’s far from being a financial source for down-and-outs.