Helpful Mortgage Advice
If you are buying a house we appreciate that you may not have yet received your formal mortgage offer. However, we thought it would be helpful to provide some general information regarding mortgages. It may assist you in choosing the right type of loan, and we hope it will give you a deeper insight into how the mortgage process works alongside the legal aspects of buying a property.
Your lender or mortgage broker will give you a full explanation of the mortgage you have applied for. The following is a brief guide to the two main types.
Under a repayment mortgage you will make monthly payments consisting of a payment towards the lump sum you have borrowed and a payment towards the interest charged on that lump sum. Under a repayment mortgage the amount you owe to the lender will gradually decrease over the term of the mortgage, so that at the end of the term the whole sum is repaid.
With an interest only mortgage, you make no payment towards the capital sum. Instead you just pay the interest element each month. Interest only mortgages may also be known as endowment or pension mortgages.
The principle behind interest only mortgages is that the capital sum due at the end of the mortgage is repaid from the proceeds of an investment made by you (such as an endowment) or, if you die before the mortgage runs its full term, from the proceeds of a life policy to be paid out on your death.
You must be aware that the figures indicated by an insurance company or any investment company as the eventual benefit or payment from the policy or investment are only estimates and cannot be guaranteed, because they depend very much upon the success of large scale financial investments made by the company involved.
If you have any doubts or questions in respect of life insurance or the requirements in respect of a mortgage then we would recommend you take the advice of a qualified financial adviser. We are not able to give financial advice however re recommend you seek independent financial advice.
Whilst we cannot provide anything other than a brief idea of the workings of a mortgage, we feel it is important to point out that if you do get into arrears, or if you are in breach of any of the other conditions of the mortgage, then the lender will have the right to repossess the property.
If the property is repossessed then the lender will sell the property and use the sale proceeds to repay the loan, any further interest due and the costs of repossessing the property. You will also remain liable to the lender for any shortfall.
If you are obtaining a high percentage mortgage then you may find that the lender will require an insurance guarantee (sometimes called a ‘high loan to value’ policy). This is a policy paid by a one-off premium. It will cover the top-up portion of the loan, so that if you default on your repayments, the insurer will pay the lender an amount equivalent to the top-up portion of the loan.
For example: your mortgage lender would only normally be willing to lend 75% of the value of the property, but you are borrowing 95%. If when the property is sold by the lender after repossession it only receives 80% of the original value of the property, the insurance company will top-up the amount to the full 95% of the original value of the original loan. The insurance company can then look to you for the loss it has suffered.
If your mortgage is to be in conjunction with a new endowment or life insurance policy, we will ask you for details of the policies involved, or the contact details of your broker if you have one, so we can request the information we need. If you are to use a policy that is already in existence, we will ask you for those details.
Most mortgage lenders now allow you to arrange your own buildings insurance. If this is the case, we will ask you for full details of the buildings insurance you are arranging, because we will have to pass this information on to your lender before they will release the funds for your purchase. If you find it helpful, we can obtain a free quotation on your behalf using local insurance brokers, which may assist you in obtaining a competitive quote.
We would appreciate it if, when we request your information regarding buildings insurance, you provide it as quickly as possible. In our experience, lack of insurance details can cause delays in moving towards completion, which will often lead to financial penalties.
If you are purchasing a leasehold property then it will usually be the case that the landlord will be responsible for the buildings insurance. Rest assured we will discuss these issues with you personally.
We have found that a large proportion of delays in the issue of mortgages arise from the time it takes for the lender to receive confirmation of earnings. If your application involves providing confirmation of earnings then we recommend you do whatever you can to ensure your employers reply to the lender as quickly as possible.
Mortgage lenders usually require that any proposed adult occupiers of the property who will not be party to the mortgage must sign a form of consent. If there are any such persons aged 17 years or over who will share the property with you, we will need their full names on completion so we can prepare the appropriate consent forms. If only the mortgagees are to reside at the property, we would appreciate it if you could advise us in writing on completion, so that we can let the lender know.
When we receive a copy of your formal mortgage offer we will carefully review the individual terms and check for any special conditions, and report back to you with advice on any action we believe you should take.
If you are unclear on any aspect of your mortgage at any time during your purchase, please do not hesitate to get in touch. Your dedicated case handler will be only too happy to discuss it with you.