Mortgage pitfalls to avoid/The Independent
Hi,
I'm looking for a few experts to comment on a feature I'm writing for The Independent on mortgage pitfalls to avoid this summer, reflecting the upcoming base rate decision on Thursday.
Thanks
Rebecca
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For buyers, make sure you are not overpaying on properties by conducting thorough market research before making an offer. This will help you avoid losing money on the property's value or potential negative equity. Preparation is key, so reserve the best interest rate available to you at the point of application, but also review the market between application and completion to see if better deals are available. For buyers, with Nationwide, you can secure an interest rate on AIP (Agreement in Principle), which allows you to reserve a rate before finding a property, which can save buyers thousands if rates increase while searching for a home. When remortgaging, consider having two options available. Secure something with your existing lender, but also explore remortgage options with other lenders. This way, you'll have two choices if the rates change or improve with either lender.
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Don't miss out on the opportunity to reduce your loan-to-value. You may be on the cusp of the next loan-to-value bracket and making an overpayment at the time you remortgage could lead to significant savings.
Don't rule out extending your term. By extending the term, although more interest will be paid, this can reduce the monthly payments now and provide some much-needed breathing space.
Don't forget about other debts. There's a lot of focus on mortgage rates at the moment, but these are still some way lower than some other forms of debt like credit cards, personal loans and car finance. It's worth looking at these to see if savings can be made there.
Don't assume your existing lender is the best. There's a wide market of mortgage products out there, and another lender may be able to offer a better deal than your existing one.
Don't rule out extending your term. By extending the term, although more interest will be paid, this can reduce the monthly payments now and provide some much-needed breathing space.
Don't forget about other debts. There's a lot of focus on mortgage rates at the moment, but these are still some way lower than some other forms of debt like credit cards, personal loans and car finance. It's worth looking at these to see if savings can be made there.
Don't assume your existing lender is the best. There's a wide market of mortgage products out there, and another lender may be able to offer a better deal than your existing one.
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The best way to avoid any pitfalls is to ensure you give yourself enough time to evaluate all your options. If you need to remortgage, don't leave it last minute or approach it with a wait and see mentality. Also make sure you shop around for the best deal, in the same way you would when your broadband contract comes to an end.
You can look at securing a rate 6 months prior to your remortgage date so if you want a fixed rate, secure one at this point in case rates continue to rise. If the rates reduce then you can look to change to that lower rate. This way you can at least reduce some of the increase in monthly payment.
You can look at securing a rate 6 months prior to your remortgage date so if you want a fixed rate, secure one at this point in case rates continue to rise. If the rates reduce then you can look to change to that lower rate. This way you can at least reduce some of the increase in monthly payment.
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The biggest pitfall is people leaving it too late in regard to their options. With the instability of mortgage rates, many individuals can secure a new product 6 months out from their end date. Rates with an existing lender can be amended continuously should rates reduce which will help those already feeling the strain.
Another pitfall is thinking short term with some individuals seeking part interest and part repayment. Whilst it will lower your monthly payment, people should ensure that their advisor runs through the ins and outs of this style of mortgage due to there being no guarantee rates will reduce anytime soon.
Lastly, people should ensure that they feel comfortable with all the features of the mortgage. We are in a time where it’s not just the cheapest interest rates, it’s about looking beyond any exit penalties, abilities to switch from tracker to fixed and more. It's the biggest monthly cost for many and people need to know all the details before any agreement is made.
Another pitfall is thinking short term with some individuals seeking part interest and part repayment. Whilst it will lower your monthly payment, people should ensure that their advisor runs through the ins and outs of this style of mortgage due to there being no guarantee rates will reduce anytime soon.
Lastly, people should ensure that they feel comfortable with all the features of the mortgage. We are in a time where it’s not just the cheapest interest rates, it’s about looking beyond any exit penalties, abilities to switch from tracker to fixed and more. It's the biggest monthly cost for many and people need to know all the details before any agreement is made.
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A regular conversation I am having at the moment with clients is to not base their mortgage decisions entirely on the current economic environment - A mortgage is a long term commitment and your future plans and priorities for you and your family should always be considered, so no knee jerk reactions.
And moving on from this - clients should avoid going it alone! A good independant mortgage broker at the moment is a cross between a super hero and a councellor.
Consider any savings you have and if they could improve your loan to value and therefore improve your rate of interest.
Dont be fixated on the term of your mortgage - do the sums and look at longer terms with the ability to overpay meaning your committed monthly mortgage payment is lower.
And moving on from this - clients should avoid going it alone! A good independant mortgage broker at the moment is a cross between a super hero and a councellor.
Consider any savings you have and if they could improve your loan to value and therefore improve your rate of interest.
Dont be fixated on the term of your mortgage - do the sums and look at longer terms with the ability to overpay meaning your committed monthly mortgage payment is lower.
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If you’re struggling with your mortgage then don’t suffer in silence. Speak to your lender or broker and there may be things that can be done to help ease the situation. Whatever happens with the base rate on Thursday, you don't have to face it alone, and in many ways, it's best not to listen to all the voices at the moment, those who are making predictions are just guessing like the rest of us. Make sure you've got a good overview of how you want to proceed, and get all the relevant documentation together so you're ready if things are still changing really fast.
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Dont assume your product transfer with your current lender is the best option for you. Get confirmation. Lenders really do not like it when you miss a payment. Make sure that is always paid. If you are really struggling, contact your lender to see what options you have. Get advice on fixing a mortgage again, it may look good to have the 5 year fix as its payment is the lowest, but a lot can change in 5 years and you could be very out of pocket. Get advice. Get advice. Get advice.
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The key is to be prepared. If your fixed-rate mortgage ends this year, don’t wait until the last minute to plan your next move. Falling onto the lender’s SVR will see your repayments skyrocket so start looking for a new mortgage now.
Lenders are tightening their criteria as rates rise making it difficult for borrowers to refinance or secure a new mortgage. To help, ensure your credit score is as healthy as it can be. Check it online with firms like Experian and receive tips on how to improve it. This will make you more attractive to lenders. Make sure you have solid evidence of your income – pay slips, bank statements, records of bonuses. These will all help.
If you want to overpay your mortgage to avoid expensive interest rates, be aware that some lenders charge a substantial fee to do this, so it’s good to check that this is cost-effective first.
A mortgage adviser will help you to work out how much you can afford so you don't overstretch. Agree a budget and stick to it.
Lenders are tightening their criteria as rates rise making it difficult for borrowers to refinance or secure a new mortgage. To help, ensure your credit score is as healthy as it can be. Check it online with firms like Experian and receive tips on how to improve it. This will make you more attractive to lenders. Make sure you have solid evidence of your income – pay slips, bank statements, records of bonuses. These will all help.
If you want to overpay your mortgage to avoid expensive interest rates, be aware that some lenders charge a substantial fee to do this, so it’s good to check that this is cost-effective first.
A mortgage adviser will help you to work out how much you can afford so you don't overstretch. Agree a budget and stick to it.
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The best way to avoid any pitfalls this summer is to speak to a mortgage broker, get your ducks in a row before hand and have all the usual required documentation, such as proof of income and identification. The market is volatile and changing on a daily basis, so the prepared will prosper.