Guide to Choosing a Mortgage
The difference between advice and information Just what is a mortgage anyway? How do I want to pay the mortgage back? What information do I have to provide when applying for a mortgage? Final ThoughtAfter making the decision on buying a property, the next thing to do is to raise the money to pay for it. For the majority of us, the way we do this is by taking out a mortgage. But what sort of mortgage? One look at the financial media is enough to confuse all but the financial geniuses amongst us as to what is the best mortgage on offer.
Well, when it comes to finding the right mortgage, there are generally two options. One way is to engage the services of an independent financial adviser, these are professional people who have a good understanding of the various types of mortgage available in the marketplace and are not limited to just one lender. They should be able to advise on the type of mortgage that is best suited for your needs, and help you choose from a number of different mortgages on offer. Of course, this advice is not free, it comes at a price, make sure you find out just exactly what that price is before you enter into any agreement with the independent financial adviser. Make sure that the independent financial adviser you choose is authorised by the FSA (Financial Services Authority). This means they have to follow FSA rules when dealing with you. One example of this is in the use of Keyfacts documents. Keyfacts documents are set out in a standard format to help you compare different services and products with each other. The two mortgage keyfacts documents are: “Keyfacts about our mortgage services” and “Keyfacts about this mortgage”.
The other option is to contact the mortgage lender directly, building societies, banks, specialist mortgage providers all advertise their wares on the internet, in specialist publications, and most of them have a presence in the high street where you can ‘drop in’ and discuss your requirements with them. The downside of contacting lenders directly is that you will only be recommended mortgages from their own range and not be shown comparative products from across the financial marketplace.The upside is that the advice does not cost you any money.
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Information is usually sent out or given out in response to an enquiry from an individual regarding mortgages, it is not a recommendation of whether or not the mortgage is suitable for you. Information packs give you the details about the mortgage in general terms. Advice, on the other hand, is given out by a financial adviser as to what is the best mortgage (in their opinion) that suits your particular needs. If it is advice that you require on choosing the right mortgage for you from all the different types of mortgages on the market, then go with a financial adviser that is authorised by the FSA. If you feel confident that you know what type of mortgage you want, then you can contact the various lenders directly and ask them for details of the type of mortgage that you want.
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A mortgage is a secured loan, which in other words means that if you don’t keep up the repayments, the lender can, and sometimes does reposses your property.
A mortgage consists of two parts, the capital (the amount you have borrowed) and the interest (the amount the lender charges you for lending you the capital).
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You generally have two choices when taking out a mortgage, either a repayment mortgage or an interest only mortgage.
With a repayment mortgage, you make monthly repayments over a period of time (usually twenty five years) that pays off part of the capital each month as well as the interest. Providing you keep up the repayments, your mortgage will be repaid in full at the end of the term.
With an interest only mortgage, you make monthly payments that only go towards paying off the interest. The capital borrowed, stays the same.
To pay back the capital borrowed, requires another type of investment product, that builds up enough money over a period of time, (usually the same period of time that the interest only mortgage is taken out for) to repay the mortgage balance at the end of the mortgage term. Sounds quite simple really, however, in reality it is a little more complicated than that as a great deal of care must be taken when choosing the correct investment product. You cannot be one hundred percent sure that at the end of the term the investment has earned enough to pay off the capital sum of the mortgage and you could end up having to ‘top it up’ to pay off the outstanding amount.
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When you go looking for a mortgage, the prospective lender needs some proof of whom you say you are, where you are living and how much money you earn (you will need to supply them with your last three months pay slips).
For those of us who are self-employed, the prospective lender will require a formal letter from your accountant with an annual statement regarding your income, and for working out how much the prospective lender will advance you in the form of a mortgage, you will need to provide them with the last three years of your audited accounts.
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You are the customer, when you take out a mortgage you are charged interest by the mortgage lender. The lenders are not doing you a favour granting you a mortgage, to them it is business and they charge you interest on the ‘loan’, which you end up paying back over the period of the mortgage. In most other consumer-based services, the customer is king. Providing mortgages is no exception, it may well be the single most important financial decision you will ever make, but you are still the customer and therefore expect to receive a quality professional service from your chosen lender.
Remember, lenders need borrowers as much as borrowers need lenders.
Good luck and good hunting.
