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.