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

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.

Mortgage Broker Q & A – Removing a party from a mortgage

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.

Mortgage Broker Q & A – Mortgage on a freehold flat

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.

Mortgage Broker Q & A – What’s an Offset Mortgage?

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.

Mortgage Broker Q & A – Do benefits count as income?

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.

Mortgage Broker Q & A – Life Insurance or Assurance?

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.

Mortgage Broker Q & A – Letting part of a property

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.

Mortgage Broker Q & A – Moving from abroad

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.

Accident sickness and unemployment cover explained

With rising unemployment and the continued economic downturn it’s unsurprising that mortgage brokers and insurers alike have noted big increases in the number of enquiries about mortgage payment protection insurance or ASU as it is otherwise known so I thought now would be a good time to discuss how the cover works and what type of cover is available.

Few homeowners are aware that income support for mortgage interest is now only available 39 weeks after a redundancy or injury etc leave you out of work, and certainly very few would continue to receive pay at full level for this length of time or even have sufficient savings to cover their mortgage and lifestyle for this duration, and this is where the need for ASU cover comes in.

These products are designed to provide cover where you are unable to work due to an accident, sickness or in certain circumstances unemployment and to help support the payment of important bills such as a mortgage, insurance, utilities & food etc. They typically will provide a benefit for between 12 and 24 months.

ASU is usually arranged with a deferment period option which may be 4, 8, 12 or 24 weeks for example which is the amount of time from being unable to work prior to being able to make a claim on the policy, in general the longer the deferment period the cheaper the cover. You can also decide whether it will then pay back to day one (i.e from the date of being out of work) or from the end of the deferment period which again will usually reduce the premium.

It may give you the option whether or not to include unemployment and this will certainly only cover you for involuntary unemployment (i.e if you are dismissed or resign there will be no cover). For the self employed care will need to be taken as many policies will not cover this type of employment or supplementary income from freelance work. Another important point is they will generally require you to have been in permanent employment for a minimum of a year, and for the policy to have run for at least 3-6 months prior to a claim for redundancy. And they may exclude redundancy where you could reasonably have expected it prior to arranging the cover so if your firm has announced job cuts in the future you need to take care that the cover will not be invalid.

Cover can normally be arranged to cover the cost of your mortgage and insurances, with the option to add extra cover up to a maximum percentage of your income or percentage above your mortgage so that you can’t be better off receiving the benefit than if back at work, and there may be the option to waive the premiums from the point of being out of work (i.e you won’t be able to claim until the deferment period is complete but you can stop paying the monthly premium when initially out of work) again though this will usually make the cover more expensive.

As usual if you are interested in this type of protection it makes sense to speak to an independent mortgage or financial advisor prior to making a purchase and make sure it suits your needs fully as many wont charge a fee for arranging the cover.

A good time to brush up your credit score

With many borrowers now falling fowl of credit scoring it’s as good a time as any to take simple steps to improve you’re credit score: here’s some tips on how to do it.

Improve payment history – Simple budgeting steps can greatly improve your credit score, make sure you always make your minimum payments by setting up direct debits.

Work to a budget – It can be a lot easier to stay on budget if you work out your fixed monthly bills (mortgage, car insurance, gas etc) and transfer your spending money by standing order to another account. It makes it much simpler to know where you are when you come to the cash machine, just make sure you always leave a little extra in the bill account in case they are higher than expected.

Update your information – Make sure all your important information is up to date, human underwriters still make a lot of decisions so it’s always good to make sure everything ties together such as driving license, bank details and electoral roll etc are at your current address.

Limit credit applications – Every time you apply for credit a search imprint is left on your credit file. If these start appearing in quick succession a lender may think you’re in difficulty so if you’re looking at a new phone and a store card it may be best left till after the mortgage application.

Check your credit report – It’s now possible to check your own credit report so make sure that the information they have is correct, particularly with regards to public record information about CCj’s, Repossessions and bankruptcies and the financial connections section.

If there’s anything on a credit report you dont understand or particularly if you are regularly refused credit for no apparent reason it may be worth speaking to a mortgage broker or advisor to find out more.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT. WE TYPICALLY CHARGE AN ADVICE FEE OF £299 PAID UPON FULL MORTGAGE OFFER. SOME BUY TO LET AND COMMERCIAL LOANS ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY
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