Questions To Ask A Mortgage Lender

When you're considering getting your mortgage for your first or next property what are the most important things to ask a mortgage lender and yourself.

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Having a list of questions ready and written down means that you are more likely to ask things that you need to know rather than feeling bamboozled buy the language and choice that you may be presented with.

Here are my top 10 things to ask a mortgage lender:

1. How do I calculate how much I can afford to borrow?

Traditionally the mortgage limit has been 3 -4 times your annual income if you are borrowing alone or 2.5 - 3 times the joint income of two people. Be aware that some mortgage lenders will look at other financial commitments that you may have e.g. outstanding debt, loans (student and the like) and adjust the multiples of you income accordingly.

Go on line and check out some of the lenders websites for a rough guide to get you started then go in for a chat.

2. Ask your mortgage lender about the other services and support that they will be giving you while you are a customer...potentially for 15 to 25 years!

Since 2004 the Financial Services Authority (FSA) has been regulating the mortgage business. Mortgage Brokers and lenders must let you know whether they will give you advice, or simply offer a selection of products for you to take your pick. They are also legally bound to tell you whether they are offering you mortgages from the general market or only their own range.

3. Do I pay for this advice?

The FSA has ruled that brokers must inform you if they are paid by mortgage lenders for recommending their specific products. Some mortgage brokers will charge a fee. Always ask before making an appointment to see them.

Independent brokers must offer you the option of paying a fee or having them work on a commission-only basis.

4. What extra costs are there likely to be?

There are some additional costs to organising a mortgage and then on a monthly/ yearly basis from then on. You need to consider these costs in order to be able to decide what you can afford to borrow.

Booking fee - payable on application and usually there will be no refund if your application fails or you pull out.
Arrangement fee - usually added to the mortgage or you could ask to pay it on completion.
Valuation fee (of the property) - Payable on application.
Legal costs - Obviously this is a general cost of buying a property. The stamp duty is a government tax on the purchase of all properties over £50,000. Land registry fees and various search fees. These are likely to be handled by your solicitor.
Accident, Sickness and Unemployment insurance - these are optional but worth considering.
Building insurance - mandatory if you are taking a mortgage.
Contents insurance - not compulsory but likely to be taken up.

5. What is a Standard Variable Rate (SVR)?

This is the normal lending rate set by your bank or building society. It can fluctuate at the lenders discretion.

If you are going for a fixed, discount, capped-rate or other fixed payment mortgage, you may have to pay your lenders SVR when your deal finishes. so shop around and check out who does good SVR and what their track record has been.

6. Can I pay off my mortgage early?

Mortgage companies can levy an Early Repayment Charge (ERC) if you pay off the mortgage before the end of the agreed term. This is because they will be losing income as a result of your shortened lending period with them However with many mortgages you can now pay off up to 10% of the value of the mortgage each year without having to pay an ERC.

ERC can amount to £thousands so be aware. It is worth paying off up to your limit in a yearly lump sum as it can drastically reduce your outstanding mortgage and monthly repayments and you will save money in interest charges.

7. What is the Loan To Value percentage?

This is what you want to borrow as a proportion of the property's value. So if you borrow £180,000 on a property worth £240,000 then the LTV is 75%.

The lower the LTV the lower the rate of interest you will be charged by your mortgage lenders.

Lenders who borrow over 90% are often charged a Higher Lending Charge (HLC).

8. Will my credit rating be checked?

Yes. A bad credit history may result in an application being denied. So when you seek advice from a mortgage broker tell them the truth and save yourself and them time and money.

Find out about your credit history and what may show up by contacting Experian or Equifax (see below) these organisations hold your credit history information that you can have access to for a small fee. You can also dispute the findings with these organisations.

9. If I re-mortgage how much will it cost?

You may have to pay an ERC (see above). If you don't you may still be liable for a final charge, though not running into £thousands.

Your new lender will charge you an arrangement fee, valuation fee and a fee for the legal work involved. Shop around as many lenders, who want your business, offer deals where they will pay your legal and valuation fees.

These added fees will be worth it if you change to a better rate mortgage.

10. What if I can't make a payment?

I always advise that you talk with your lenders. Tell them if your circumstances change and you are getting into financial difficulties. You may be thinking of taking some time out or retraining. Many mortgage lenders now offer mortgage holidays or make adjustments to cope with the new circumstances

Don't forget you can get help and advice from your local Citizens Advice Bureau (CAB).

Although this isn't the most exciting bit of buying your home, it is one of the most important things to get right.... know the questions to ask.

Some Useful Links To Take A Look At:

Financial Services Authority - www.fsa.gov.uk
L&C Mortgages - www.lcplc.co.uk
Experian - www.uk.experian.com
Equifax - www.myequifax.co.uk
Citizens Advice Bureau - www.citizensadvice.org.uk

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