Money to the Masses visited Habito to speak to Will, one of its mortgage experts, to ask all of your mortgage questions.
Question 1 - What is the best way to find the best mortgage deal?
I would always speak to a mortgage broker. Mortgage comparison sites are great, however, they are not always going to tell you whether you are eligible for that specific product. Also what lenders will do, is they will highlight their lowest rates and that doesn't always take into consideration any fees that are associated with that product. Your mortgage broker will work out which is the best product for you based on what is called true cost. And that includes the initial rate, the monthly cost and any associated fees and they will be able to show you which
one is the most cost-effective for yourself.
Question 2 - How much should you know before you go and buy that property?
Mortgage brokers and mortgage experts are there to help you. I love my job and Iove helping customers so it gives me great pleasure giving them that information and educating them throughout the whole process. No question is a stupid question, ask as many as you like, it's a big financial commitment so it is important you get it right and you understand it. Don't worry about it at all.
Question 3 - When lenders look at your bank statements, what are they looking for?
What lenders are looking for is credit commitments so that basically means credit cards, loans, student loans, any regular payment such as maintenance payments. I think it is really important to stress that mortgage lenders are not trying to catch you out, they are there to lend, however, they need to ensure that it is affordable every month.
If you have more than one bank account then it is good to provide that upfront because as part of the application a credit search will be done so if you have a loan and it comes out from another account the lender will question that. Then it begs the question, are there other loans from other bank accounts as well? If you have got them, it is best to be upfront and provide all of that information.
Question 4 - Is it better to clear loans and debt before I apply for a mortgage?
If you can yes, the more credit you have outstanding the less you are able to borrow. If it is only a small amount and it is paid off on a monthly basis, it doesn't matter, lenders will factor that in but the less credit the better.
Question 5 - If I took out a payday loan will that affect me if I apply for a mortgage?
Yes, it will, lenders are more and more open to payday loans, however, it does reduce the number of lenders that are available to yourself. My advice would be don't apply for any payday loans particularly in the run-up to applying for a mortgage and try to avoid it totally if possible.
Question 6 - How to get the maximum borrowing amount when applying for a mortgage?
Firstly, is that the best advice? Do you really want to get the biggest mortgage and potentially struggle with the monthly payments? My advice would be to make sure that it is affordable and you are comfortable with the monthly payments. But if you have any credit outstanding or any loans that can be cleared then try to reduce those down as much as possible. I appreciate it is easier said than done but if you can increase your deposit to anything over 25%, which is a huge amount of money, that will ensure you get the maximum amount of borrowing. When considering a mortgage term, anything over 25 years tends to mean that you can get the most amount of borrowing.
However, there are a couple of schemes out there Help to Buy is one and also Shared Ownership. With Help to Buy you can get an equity loan from the government which you can put towards your deposit. You then you get a mortgage for the remainder, which can enable you to buy a slightly bigger property. Shared Ownership is a slightly different concept but you only buy part of the property and then you rent the other part of the property.
For more information on these schemes see:
Question 7 - How to decide the best mortgage term for me?
I would always recommend the shortest possible term; let's be honest no one really wants a mortgage, they want a property. So the quicker you can pay it off the better. But I cannot stress enough that it needs to be affordable. If you want to go for a 40 or 35-year term because that fits in with your requirements now then sure, go for it. One thing I do want to mention is that any term over 35 years does restrict the number of lenders that are available for yourself. Halifax and Santander will offer 40-year mortgage terms at the moment but the number of lenders is significantly reduced.
Question 8 - Can I reduce a mortgage term?
Yes, you don't necessarily have to do it when you remortgage. However, when you do remortgage you can assess the whole mortgage so that can include the term, the fixed product, the borrowing amount aswell. Lenders will allow you to change your term during a fixed period. But they may charge you an administration fee in order to do that. Another thing that you can do is you can keep your term as it is and overpay on your mortgage. That way you are not committed to making those higher monthly payments, so you pick and choose when you want to increase them.
Question 9 - Is it worth overpaying on your mortgage?
Yes absolutely. Overpaying is going to reduce the amount of mortgage outstanding which means you are going to pay it off quicker and you will pay less interest. 100% if you can afford it, then do it. One thing to consider, lenders will usually have restrictions on how much you can overpay by. Most will allow you to overpay up to 10% of the outstanding balance per year. Which is quite a lot. But if you are getting close to that 10% limit then just be mindful because there might be early repayment charges which are applied for those overpayments. When you get to the Standard Variable Rate you can overpay as much as you like without any early repayment charges.
Question 10 - How do you access money for home improvements
If you are tied in with your current lender then I would suggest speaking to that lender. They can provide something called a further advance which is essentially an additional loan which is secured against your property, like a mortgage. It will be on a separate rate, however, you can take out as much or as little as you need subject to their affordability checks.
If you are out of your deal, so you are on the Standard Variable Rate (SVR), then you can apply to another lender and you could take out what you need, assuming you have enough equity in the property. And that is the difference between the mortgage balance and the property value. But always consider whether it is worth doing; do you need to take it out as a mortgage or would a personal loan be better?
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