A mortgage is often an essential tool for people wishing to buy a property, but overly complicated jargon surrounding this kind of finance can frequently result in confusion.
Wherever you are in the world, having a clear understanding of procedures allows you to confidently look around for the best deal, so that owning your dream property could be just around the corner.
1. Mortgage types
There are two types of mortgage: fixed and variable rate.
A fixed mortgage offers a defined rate of interest over a certain period of time, while a variable rate mortgage is determined by bank base rates.
Taking into account that the average mortgage lasts for 25 years, the rate of interest will not remain the same for the entire length of the loan. Typically, a defined rate of between two and five years is agreed, following which a standard variable rate comes into effect, the amount of which is set by the lender.
Characteristically, this amount will be higher than the starting fixed rate, so it is often shrewd to shop around for a re-mortgage at the end of a fixed deal.
Choosing whether to opt for a fixed or variable mortgage really depends on your circumstances. A fixed rate mortgage means you have the security of knowing the exact amount you will be paying each month for the duration of a set time agreed with the lender. With a variable rate mortgage, there is more flexibility and habitually lower initial payments.
When consulting a mortgage lender, it is paramount that you are completely honest and transparent with regards to your expenditure, as bank statements are usually assessed by the lender to determine how much money they are prepared to lend.
2. Lending criteria
The amount you can borrow will be dependent on age, credit scoring and the lender’s own application process. For example, it’s unlikely that someone aged between 45 and 50 would be granted a 30-year mortgage, as this would take them into their retirement years.
It’s a good idea too to keep a check of your credit rating and settle any outstanding debts, such as credit cards, before putting in an application.
In recent years, lenders have steered away from the traditional way of calculating what you can borrow based on a multiple of your income. They now make a more detailed analysis of money coming in and going out. Factors such as marital status, income levels and predicted future expenses will also be taken into account.
3. Deposit
One of the most common hurdles of securing a mortgage can be accumulating a sufficient deposit. A sum of 5 per cent of the value of the property is, typically the minimum required, but it is recommended that at least a
10 per cent deposit is put down, with the far more competitive rates offered with a minimum 25 per cent deposit.
By saving as much as possible as early as possible, you will be considered a lower risk to lenders, and therefore have access to a wider scope of offerings. Legal fees and moving costs must also be
considered.
4. Remortgaging
Although you may have secured an attractive rate when you first take out a mortgage, you don’t have to remain with the same product for the entire duration of the loan.
There is the option of either selecting a different rate from your existing lender, or choosing a new lender altogether.
If you decide to move to a new lender, then a standard mortgage application process will be carried out. Providing that the property’s value is agreed and your application is approved, the transferral process should be simple. The debt with the previous lender would be settled and repayments would subsequently be made to the new lender at the agreed new rate.
5. Broker help
Using a fully qualified, independent mortgage broker can be of great benefit during the entire application process. They will be able to search the whole market place to find the optimum mortgage for your requirements, providing access to thousands of mortgages from numerous lenders.
An independent broker will discuss the options available to you, so again ensure you are totally upfront with regards to your overall financial situation. Combined with their knowledge of the market, it is more likely you will have access to the most fitting mortgage for you, rather than the best of what a specific lender may have available at the time.The process can also be accelerated by using a broker, which means you don’t have to waste valuable time with other, unsuitable lenders.
— The writer is Managing Director at deVere Mortgages
