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Mortgage Broker Q&A. Interest only or repayment mortgage?

Thursday, November 12th, 2009

Question; what are the pitfalls and benefits of an interest only mortgage?

They say life is all about risk, and this question is a prime example.

If you want the certainty that your mortgage will be repaid as long as you keep up your payments then you should definitely take a repayment mortgage.

However if the cost is too high in the short term however you could take an interest only mortgage and move to a repayment mortgage later although you should be aware that interest paid will be dead money and not reduce your debt.

If you take an interest only mortgage in the long term you are gambling that by investing wisely you can outperform mortgage interest rates on your investment return and produce a surplus by the end of the mortgage. However if your investment does not perform as planned then there will be a shortfall which you will have to find elsewhere.

It should be remembered though that your investment will not only need to outperform mortgage interest rates as you will pay interest on the full balance of the mortgage for the full term. Whereas if you took a repayment mortgage the capital part of your payment would gradually reduce the interest element and so like for like you will repay more interest over the term on an interest only basis as well.

As always for more information about what type of repayment would be best for you and to speak to a UK mortgage advisor call 08454594490.

Tags: capital and interest, capital repayment, interest only, mortgage interest, Repayment Mortgage
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Mortgage Broker Q & A – Removing a party from a mortgage

Friday, October 30th, 2009

Question – I have a joint mortgage currently and we want to change it to being solely in my name or my partners what do we need to do?

Firstly you need to establish whether your existing mortgage is still within any tie in period and what penalty there is if so. Then you need to check with the lender whether they are happy for the mortgage to be in only one of your names, which will mainly come down to their assessment of whether it is affordable to you as a single applicant.

They will re-assess the affordability of the case as if it was a new mortgage. If they are happy that you can afford it alone then a new mortgage contract will be required and there will be costs involved with the legal process of making the transfer of equity. However if they are not happy you will not be able to make the change without finding a lender that does believe you can afford the mortgage in your sole name. As it’s a contract the only way to make the change if your existing lender is not satisfied is to change lender and this is where it becomes important to consider any early repayment charges and whether it is best to wait until these penalties cease.

As well as affordability the lender will usually re-assess you as a credit risk and possibly the property value. If however you are considering this because of an impending bankruptcy this will not actually prevent the property from being seized which is a common myth.

As usual if your need further information about this call 0845 4594490 to a speak to a mortgage advisor about your own circumstances.

Tags: Mortgage Advice, Mortgage Contract, Removing party from mortgage
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Mortgage Broker Q & A – Mortgage on a freehold flat

Wednesday, September 30th, 2009

In Q & A we take a look at some of the questions mortgage advisors answer on a regular basis.

Question; I have been told it’s difficult to arrange a mortgage on a freehold flat, why is this?

In a freehold you are responsible for the maintenance and insurance of the building and own the land on which it is built, which in the case of a normal house is a good thing.

However in the case of a flat this means that there is no clear definition around who is responsible for which parts of the building. Your roof is your neighbour’s floor and your floor is someone else’s roof.

Imagine then that your upstairs neighbour leaves his bath running and your roof collapses, whose responsibility is this now? If your neighbour has no insurance then it could get pretty messy and that’s why as a mortgage lender it’s a bit of a no go area.

This problem can also occur with what’s known as a flying freehold, this is a maisonette or house where some of the property extends over or under another property on a freehold tenure.

If you are in need of a mortgage on such a property they may be steps you can take to go about getting one so call 0845 4594490 to speak to a mortgage advisor for specific advice on the area.

Tags: Flying freehold, Freehold Flat, Freehold Tenure, Mortgage Advice
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Mortgage Broker Q & A – What’s an Offset Mortgage?

Thursday, September 24th, 2009

In Q & A we look at some of the questions mortgage advisers answer on a day to day basis.

Question; Whats an Offset Mortgage and how can they save me money?

Offset Mortgages have lessened in number thanks to the credit crunch but for some people they could still represent a very effective way to save money on mortgage repayments.

In an offset mortgage a savings account is held with the lender and any balance held in the savings account will be offset against the outstanding loan amount and no interest is paid on the equivalent balance of the loan. The benefit of this is that Mortgage Interest rates are generally above savings interest rates as this difference is the premium or margin the lender will make on the loan.

You are also taxed at either 20% or 40% on your savings interest (unless you don’t pay tax but let’s assume you do if you have a mortgage). This means that if you could get a savings rate of 3.5% gross and your mortgage was 4.5% for example then the real return on your savings would be either 2.8% or 2.1% after tax. That would mean that for every £1000 in the offset account you would be better off by either £17 or £24 a year in this scenario and your mortgage payments could be reduced by £45 per £1000.

But it doesn’t end there, you can usually either use the offset to reduce the term of your mortgage or your monthly repayments. If you reduce the payments but deposit the savings into the offset the balance will increase accelerating the reduction of your interest payments and increasing savings month on month but it also can be used as a way of effectively paying lump sums off a mortgage with the added benefit that these can be easily accessed should you have a rainy day!

For more information on Offset Mortgages call a mortgage advisor on 0845 4594490 for advice.

Tags: Mortgage Products, Offset Mortgage
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Mortgage Broker Q & A – Do benefits count as income?

Monday, September 21st, 2009

In Mortgage Adviser Q & A we look at some the common questions answered by mortgage brokers on a day to day basis.

Question; Will lenders consider my benefits as income when assessing affordability?

Most lenders will consider some types of benefits as income and this varies from lender to lender. For example it is quite common for child tax credits to be considered as income but child benefit not to be, it is also quite common for other income such as regularly received child maintenance payments to be considered. Again though how much is applied will be specific to each individual lender.

Most lenders will however require you to have some form of income apart from benefits as well, this is because year by year benefits will be changed in the budget and your entitlement to a benefit cannot be guaranteed in the long term.

For information about which benefits are considered as income with different lenders seek independent mortgage advice.

Tags: Affordability, Benefits, Income Multiples
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Mortgage Broker Q & A – Life Insurance or Assurance?

Friday, September 18th, 2009

Question; What’s the difference between life insurance and life assurance?

Assurance refers to cover for an event that will definitely happen or that is inevitable, so in the case of life assurance this means that the policy will always pay out if payments are continued because it will run for the whole of your life and inevitably will therefore pay out when you pass away.

Life Assurance is therefore an investment, whereas life insurance will run for a specific term and will only pay out in the event that you pass away within the term. Should you survive the term there will be no return on the premiums however this will obviously be reflected in the price.

Tags: Life Assurance, Life Insurance
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Mortgage Broker Q & A – Letting part of a property

Tuesday, September 15th, 2009

Question; I want to buy a property and let a room or rooms out, is this a Buy to Let?

In short probably not if you or one of your direct family members occupy 40% or more of the property this will be classed legally as a residential mortgage.

The exception would be where you are buying a block of flats or converting a property to flats and your personal flat is less than 40% of the buildings total floorspace.

If they aren’t flats then you will occupy the public rooms too so unless your property has a very large number of bedrooms it would usually mean you occupy more than 40%.

If you are thinking of doing this however it is common for sub letting to be disallowed as a condition on a residential mortgage contract so always consult a mortgage advisor about the legal implications.

Tags: Buy to Let, Letting, Mortgage Contract, Sub Letting
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Mortgage Broker Q & A – Moving from abroad

Monday, September 14th, 2009

In Q & A we take at look at some of the common questions faced by mortgage brokers currently.

Question; I recently moved to the UK from abroad, when can I buy a property?

High street lenders will usually require you to have full permanent right to reside in the UK and to have been resident and working in the UK for a minimum period of time often a year or perhaps up to three years.

However there are exceptions to this and some private banking arms of major banks may be prepared to lend to you from the moment of your arrival in the UK regardless of whether you have permanent right to reside or not.

These arrangements though may be restricted to people with higher incomes (for example £50K a year) or high levels of existing assets.

For that reason there isn’t a black and white answer to this question so it’s usually best to seek professional mortgage advice, so if you would like to know call us on 08454594490 and speak to a mortgage advisor.

Tags: Emigrating, Moving from abroad, New to UK
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