Mortgages
Glossary
How much can you borrow?
Generally speaking the lender multiplies your salary or profits by 3, and then adds 1 off the second salary. They then deduct your annual hp loans, credit card payments and after all that, generally, you can't borrow a penny! Some lenders are more generous, they evaluate how much you can afford to pay each month. Others increase your income multiples if there is plenty of equity. If you are classed as a professional (what?), they will lend you more.
Self Certification
No - it's not a way of reneging on your debts. If you have at least 25% deposit and your credit is good the lender will allow you to self cert your income with no checks to accountants or employers.
Credit Checks
When making an application for a loan / mortgage the lender carries out an in depth credit search. They will find out a lot about you - if you have been naughty they will decline or put certain conditions on the loan. Don't 'fret’, there are lenders who specialise in bad credit cases’s but you will not get the best rates until you have repaired your credit history.
Interest Rates
Variable
normal rate charged by the lender (goes up / down as the interest rates change)
Fixed
the monthly payments stay the same for a specific period.
Cap & collar
your payments fluctuate between an upper and lower rate of interest for a specific period and cannot go outside those limits
Tracker
follows the bank of england interest rate (this is different from the lenders mortgage rate)
Discount
lenders will offer a percentage of the variable rate or the tracker rate for a specific period, but the payments can go up / down depending on the BOE interest rate.
Mortgage Indemnity - 'The con bond'
Some lenders will ask you to pay for a one off insurance policy if they lend you more than the 75% loan / value eg:
Purchase price £100,000 amount borrowed £100,000. The forced sale value of the property is £75,000, therefore if you default on the mortgage the lender can expect £75,000 from the sale. But the lender is still owed £25,000 which was underwritten by a 1 off premium insurance policy which you either paid or had added to the mortgage payments. Now the con bit, you paid to indemnity (the lender), the lender then claimed, and then the insurance company pursues you for what they paid out. I am pleased to say that more and more lenders have dropped this option.
Repayment of Mortgage
Interest only - you pay interest, the debt does not reduce, but in a large number of cases an investment plan is used to create capital to repay the loan.
Capital & Interest
You pay part of the capital with interest each month, but in the early years you mainly pay off the interest. In about year 10 / 11 the majority of the monthly payment on a 25 year mortgage contains capital.
Early Repayment Charge
A lender will offer you a good looking deal to take out a mortgage with them, but will lock you into that lender for the duration of the deal and sometimes longer. In some cases if you redeem the mortgage in that period you will be heavily penalised. Not all deals have the ’ERC...
Equity Release
For the over 60’s.
No negative equity guarantee
Releases capital and or income, the income is tax free
No repayment of interest which is rolled up
Re mortgage
Most lenders allow you to borrow money from the equity of your property without charging you extra interest rate.
Buy you let / let to buy
A popular way to create an alternative 'pension fund’. You need about 20% deposit and the lender will need proof of what the rental income will be (should be about 125% of monthly mortgage payments). Danger, with no rent you will still have to pay for 2 mortgages - ouch !
Foreign Mortgages
Before you put on the rose tinted glasses and commit economic suicide by buying a house overseas, remember it is the same as buying a house over here. Ask yourself - will it fall down?, is the rising damp creating a swell?, is the woodworm joining hands? will you be able to sell it when you want to move?. Take a good look and seek a lot of expert advice - plan it well and write everything down. By the way there are a couple of UK mortgage lenders who will lend overseas.
DSS
If you have changed your lender or increased your existing mortgage since october 1995 then the DSS will only help with interest payments for a mortgage up to £100,000, 9 months after the event of redundancy or illness / accident (see general insurance).
The tax is paid on the total purchase price, so it may be worth negotiating how the various parts of the property are combined, especially if the house is being built for you i.e. you could pay for the land separately.
Your home is at risk if you do not keep up repayments on your mortgage or loans secured on it.