buy mortgage: What You Need to Know

2007-03-08 10:33:40

( Financial )



Do you want to buy mortgage? Whether you decide to buy to let mortgages or right to buy mortgages, or choose another option, there are certain things you need to be aware of.

What kind of mortgage?
There is a range of rates (fixed and capped) discounts. There is also a range of flexible mortgages:
- base rate tracker mortgages
- cash backs
- mortgages for self-employed buyers.

Talk to the lender about which options suit your needs.

Monthly payments?
You need to fit your budget – so get quotes with regard to payments from different lenders on a few deals. If a quote for your monthly payment at a calculated interest is unaffordable, don’t overstretch yourself.

Redemption penalties?
Deals that are capped, fixed or discounted could have penalties which could tie you to the lender after the period agreed upon. If this is the case, find out how long for and what the monthly payment is that the lender would ask for at his standard variable rate.

What about after the capped, fixed discounted period?
This is very important to consider when you buy mortgage. Either a lender will let you know about their new products or you will be put on the standard variable rate. If they do the latter don’t settle for it – once your first deal is through, look for a new one.

Arrangement fee?
A lot of lenders charge this, and when you buy mortgage, the amount is not insignificant. However there are lenders who won’t charge it, just to get your business.

In some cases, a mortgage (principally fixed rates) has a booking fee. This secures your funds for about half a year, usually.

Incentives?
The market is very competitive and often lenders will offer you special incentives if you are self-employed. For example, they could:
- pay for your legal / valuation fee
- waive the arrangement fee.

Tie-in insurances
A lender could offer you a mortgage on condition that you accept their buildings / content insurance, for example. Because they aren’t insurance specialists, their deals won’t carry the cheapest rates and neither will they be the best products the market has to offer. So shop around for insurance separately. In fact, there is a move to ban compulsory insurance.

Indemnity Guarantee Premium?
This is a fee charged on mortgages that represent a high percentage of the property value. This is a concern for first-time buyers with little expendable income. This is insurance for protecting the lender if you can’t meet your monthly payments. However, you pay for it even if it doesn’t protect you at all. The cost can run very high. Some lenders have done away with this fee completely.

Interest charged?
In some cases, lenders will charge interest annually – so your monthly payments are taken off your debt at year end. Effectively you pay interest on the starting sum all year. It is fairer to calculate interest daily. Some lenders will do the latter automatically. Otherwise you should request it.


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