Sometimes circumstances change and we outgrow our current houses; the same thing can happen with mortgages.
Moving home is the perfect opportunity to shop around and see what other lenders are prepared to offer you. Even if there is an early repayment charge to pay to your existing lender it is well worth checking other lender deals, as they may still work out cheaper in the long run.
As an independent broker with access to a comprehensive range of providers, we are able to find you the right mortgage at the best rate.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Our fees and charges vary depending on the Services we provide to you. We charge a fee of up to £500 payable upon Completion. Our typical fee is £200. We will also be paid commission from the lender.
How do I find out how much I can borrow?
To determine how much money that can be lent to you, the lender will need certain information, such as:
- Recent payslips
- Your last P60 tax certificate
- Details of all regular outgoing payments
- Trading accounts for the previous three years if you are self-employed
Your credit history is a factor, as is whether you are applying on your own or making a joint mortgage application.
Typically, you will be able to borrow somewhere between three and four times your gross annual salary (staff bonuses and other income may also be taken into consideration.) It is worth noting that the upper limit of available mortgage amount is reserved for those with a fantastic credit history and a proven track record of financial responsibility.
Additionally, we take into account the uncertainties of the future, including changes in interest rates and personal circumstances.
The Two Basic Types of Mortgage
There are essentially two ways to repay the money that you are borrowing (formally known as the capital): repayment Mortgages (capital and interest) and interest-only mortgages.
A repayment mortgage guarantees that you’ll own your property at the end of the mortgage term. Every time you make a monthly payment on a repayment mortgage, you reduce both the loan and the interest until the debt is completely paid off.
For the first few years you’ll mostly repay interest. This means that if you transfer to a new mortgage in the first few years, it is unlikely that you will have paid off much of the capital.
But as the years pass, you’ll begin to notice that your monthly payments are making a difference to the capital debt and your mortgage will slowly shrink. Additionally, many lenders now allow you to make overpayments or lump sum payments, which may help shorten the term of your mortgage or lower your monthly repayments.
With an interest-only mortgage, your monthly payments cover just the interest on the loan for the term of the mortgage.
For example; during a term of 20 years, if you borrow £150,000 in 2013 you will still owe £150,000 in 2033.
The lender will require that you also pay a monthly amount into an investment fund with the expectation that it will cover the capital loan when it reaches the end of the mortgage term.
Investment funds have the potential to either under-perform or over-perform, depending on the economic climate.
If saving rates have been good during your mortgage term, you may end up with enough to pay off your mortgage debt and have money left over that you can take as a cash lump sum. However, if you’re unlucky and savings rates haven’t been good, you may end up with a shortfall and you will be liable to make up the difference.
Why should I use a mortgage broker?
As well as the two basic types of mortgages, Affinity Mortgages cam advise you on other options that might be more suitable for your needs, including:
- ISA Mortgages
- Pension Plan Mortgages
- Combined Mortgages
- Standard Variable Rate (SVR) Mortgages
- Fixed Rate Mortgages
- Capped Rate Mortgages
- Discount Rate Mortgages
- Tracker Rate Mortgages
- Flexible Mortgages
- LTVs, deposits and the credit crunch
In general, the larger the deposit, the better the mortgage deal. In the current market, you may be expected to accompany your mortgage application with a larger deposit than you would have just a couple of years ago.
Before the credit crunch, lenders were giving out high loan-to-value (LTV) mortgages – loans of, say, 90% or more of the value of a home.
The global economic meltdown has forced banks and building societies to get tough on lending. This was bad news for cash-strapped first-time buyers as high LTV mortgages were swiftly phased out.
What is a “Mortgage Agreement in Principle”?
Before you find your dream home, you can obtain a ‘mortgage agreement in principle’. This is not a solid commitment from a mortgage lender but a provisional ‘OK’ – it lets estate agents and sellers know that you’re serious about buying.
Incentives for first time buyers
Affinity Mortgages can help you wade through the deals available to first time buyers and ensure that you are getting the best deal.
Common incentives include:
- First-time buyer discounted rate mortgages– these will have a preferential discount rate for a fixed length of time. This could be a low fixed rate or a generous discount off the lender’s standard variable rate (SVR) or the Bank of England Base Rate. Discount periods typically last between two and five years. Once these incentives have expired, payments will increase.
- Cashback– some deals give you a cash payout upon completion of the mortgage (either a fixed amount or a percentage of the loan). This can be particularly attractive to first-time buyers as they offer cash when money is likely to be tightest.
- Free legal fees
- Free/refund valuation– A lender will value a property before lending money on it. Free valuations are free to the borrower and paid for by the lender instead. A refund valuation requires payment up-front from the borrower, with a full refund upon completion. But if the buyer later decides not to proceed, the valuation fee will not be refunded. A free or refunded valuation can save you around £300.
- Flexibility– a bank or building society may tempt you with the flexibility to make overpayments or lump sum payments to clear your mortgage faster, or allow you to make an underpayment or take a ‘payment holiday’ at times when money’s tight in the future.
Life Insurance/Life Assurance
Many lenders require that you take out life insurance as a condition to the mortgage, in case the worst should happen. Life insurance guarantees a lump sum payout in the event of the borrower’s death, and any debt outstanding on the mortgage is then repaid from this.
To make the world of finance that little bit clearer, call Affinity Mortgage Solutions on 01327 706635