Your Easy Guide To Mortgages (Part 2 of 2)
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Loading ...E is for…
Early repayment charge (ERC) or redemption penalty
If you sign up to a special-rate mortgage and later decide to pay off your loan early, then expect to pay a hefty fee for the privilege of bailing out before time.
Endowment policy
An endowment is a toxic combination of life insurance and an expensive investment policy. Pass the sickbag!
F is for…
First-time buyer (FTB)
First-time buyers prop up the entire property, because they are the people willing to step up to the first rung of the property ladder. Having said that, FTBs are a rarity these days due to today’s sky high property prices and tetchy interest rates.
Flexible
With a flexible mortgage, you can make lump-sum or monthly overpayments and underpayments, take payment holidays, and so on. However, many modern mortgages now include some of these features, so don’t be tempted to pay over the odds for a fully flexible loan.
H is for…
Higher lending charge (HLC) or mortgage indemnity premium (MIP)
Mortgage lenders are cautious beasts, so they don’t like to lend you more than, say, three-quarters (75%) of a property’s purchase price. If you want to borrow more that this 75% threshold (or, in some cases, 90%), certain lenders will charge you a percentage fee depending on how close to 100% you wish to go. This fee can amount to thousands of pounds, so do ask if an HLC applies.
I is for…
Insurance
Mortgage lenders are very keen to cross-sell other financial products to their borrowers, particularly over-priced protection. My advice would be never to buy building and contents, life and rip-off mortgage payment protection insurance (MPPI) from your lender. Instead, shop around online for this cover or see a reputable insurance broker.
Interest rate
Many prospective home-buyers don’t look beyond the attractive headline interest rates advertised by lenders. Although it’s true that mortgage interest will account for the lion’s share of your home-buying costs, you still need to take other one-off and ongoing costs into account. For the record, you have several choices when it comes to choosing your interest rate, such as capped, discounted, fixed, tracker and standard variable rate (SVR) deals. You can learn about mortgage interest rates here.
L is for…
Lodger, parents or ’share to buy’
If you are unable to buy a property on your own, then you boost your budget by, for example, getting help from your parents or buying with others using a share to buy mortgage. Another alternative is to take in a lodger: under the government’s Rent a Room scheme, you can earn up to £4,250 a year, tax free, by allowing someone live under your roof.
M is for…
Monthly repayments
Most home-buyers arrange a mortgage over 25 years, which means coughing up three hundred monthly mortgage repayments. Having said that, now that you can stretch a mortgage over 40 years you could find yourself forking out £480 per month. Eek!
Part 1 covered My A-D and Part 2 in this series covered E to M of the mortgage alphabet. Now that they are out of the way, i’ll allow you time to absorb and will finish off with N to Z in a follow-up article.
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This article can be read in entirety at “Your Easy Guide To Mortgages” . The Motley Fool can also help you compare mortgages in a matter of moments.
