Applying for a mortgage could possibly be the biggest financial decision you make in your life. If you make the wrong decision, it could potentially could you thousands in the long run.
To make sure you’re making the right choice, here are five questions that must be answered when taking out a mortgage —
1. What are the different types available?
Broadly speaking, there are two main mortgages: the standard residential mortgage or the buy to let mortgage. Most consumers don’t realise that a handful of mortgage options available. Here are some of the most popular options available:
- Capital and interest
- Pension mortgages
Your lender will be able to explain which type fits your situation. Be sure to closely study each option.
2. What is the interest rate?
To decide how much money you’ll be spending over the length of the loan, it’s essential that you know the interest rate. Since interest rates can change quickly while applying for a mortgage, most lenders will be able to lock you in for a few days, giving you an idea on how much your monthly payment will be and how much you will pay back in interest. Remember though, if you plan on taking advantage of a mortgage that isn’t fixed, the rate can change throughout the duration of your loan. Again, it’s best to have the lender carefully explain what you’re going to be responsible for.
3. What will my monthly payment be?
When applying for a mortgage, get an exact number on how much you’re going to pay every month. If possible, try to get a long-term sheet that shows you how much is going toward your principal and interest. By having a set number, this will help you budget and show you how much you’ll be paying after fees, taxes and interest in the future. Another reason why a fixed rate might be good: the Bank of England has stepped in to curtail the Help to Buy Scheme, which may result in banks increasing their rates as wholesale lending tightens.
4. Are there any penalties?
If you intend on paying off your mortgage early, most banks won’t penalise you; however, some may have it drawn out in the contract that penalties may apply. Aside from paying off your mortgage early, some lenders may also tack on a fee if you transfer your mortgage to another lender.
5. What are you allowed to do?
In the world of mortgages, all lenders are going to vary with their rules. To see how much freedom you truly have, here are some additional things to ask:
- Can I transfer this mortgage to another property?
- Am I allowed to make partial payments?
- Do I have to buy your insurance?
When choosing lender, always make sure that you get more than one quote. Generally, if you work directly with one lender, they will be one-sided, often persuading you to buy their products. By being informed, answering the right questions and budgeting properly, you’re bound to find a mortgage that you can be comfortable with.