Mortgages can seem confusing, but don’t worry, we’re here to help! In this article we will discuss some things you might not know about mortgages that might help you in your future plans. We’ll cover everything from overpayments to rate switches, so you can make sure you’re making the best decisions for your home. So, whether you’re a first-time buyer looking for help, or looking to remortgage a property you already own, read on for some essential information!
What is a joint borrower sole proprietor mortgage?
A joint borrower sole proprietor mortgage is when two people apply for a mortgage together, both are liable for the full amount of the mortgage but only one person owns the property. This means that you can apply with someone who’s willing to accept joint responsibility for making mortgage payments without having a legal claim to the property – meaning they wouldn’t have the burden of additional stamp duty to pay, and ultimately meaning that an extra income can be added to the application. A common scenario would be when a parent wishes to help increase the borrowing capacity for a dependant enabling them get onto the ladder, or buy a more expensive property than they would have got on their own – but this doesn’t have to be a family member, it can potentially be anyone.
It is important to note that both borrowers are equally responsible for repaying the loan, even if one does not live in the property. As a result, it is important to choose a co-borrower wisely and to make sure that both parties are fully committed to the loan agreement.
What are mortgage overpayments?
Overpayments on a mortgage are when you make payments in addition to your committed monthly mortgage payment. This will decrease the amount you owe faster and save on interest costs across the term of the mortgage. Most lenders will allow you to make overpayments of up to 10% of the balance of the mortgage each year, although some are higher.
Mortgage products have great levels of flexibility now – so an overpayment allowance can be very useful when looking to keep monthly committed mortgage payments low (by increasing the term) and then overpaying whenever possible. Be sure to check with your lender to see if there are any restrictions on overpayments before making additional payments.
What is the mortgage term?
The term of a mortgage is the length of time you have to repay the amount you have borrowed, plus any interest and other fees that may be charged. The term of a mortgage can have a significant impact on the overall cost of the loan as well as your monthly payment amount. For example, if you have a longer term for your mortgage (some lenders allow a 40 year term taking employed income to age 75), you will have lower monthly payments but will also pay more in interest overall. Conversely, if you select a shorter term of your mortgage, your monthly payments will be higher, but you will save on interest costs in the long run. It is important to carefully consider your options and choose the term best suited to your needs and budget factoring in any future changes.
What does it mean when you “Port” a mortgage?
If you’re planning on moving house, you may be wondering what “porting” your mortgage means. Porting is simply the process of transferring your existing mortgage terms to your new home. So, if you have a fixed-rate mortgage that you’re happy with, you can take it with you when you move as long as you meet your lenders criteria at the time. This can be a great way to save money if your rate is competitive or taking out a new mortgage would require paying an early repayment charge.
It's important to remember that not all mortgages can be ported. So, if you're thinking about moving house, it's worth checking with your lender to see if your mortgage can be transferred. If not, don't worry - there are plenty of other great mortgage deals out there just get in touch! Certain lenders will only allow brokers to port certain products, so it is always worth asking for a second opinion.
What is a further advance on a mortgage?
A further advance is when you borrow more from your existing lender, using your property as collateral. This can be an attractive option if you’re looking to make some home improvements or consolidate other debts, as you would be unlikely need to pay a redemption charge on the mortgage and will typically get a better rate than an unsecured loan.
It's important to remember that you are paying interest over a longer period than most other unsecured loans and putting your home at risk if you can't keep up with the repayments. Therefore, it's essential to consider your options before taking out a further advance on your mortgage.
What is a mortgage rate switch?
A rate switch is when you remain with your current lender and simply switch the rate applicable to your mortgage. This may be beneficial if your lender is offering a competitive rate as it will be a relatively simple process, or if your circumstances have changed it may be the only viable option. We would always recommend checking whatever is available on the open market prior to switching to what your lender may be offering you as there may be more suitable deals available.
What is an “Offset” mortgage
An offset mortgage is a type of mortgage where your savings are used to offset the amount you owe on your mortgage. This means that you only pay interest on the amount of your mortgage that is left after deducting your savings balance. For example, if you have a mortgage of £100,000 and savings of £20,000, you would only be charged interest on £80,000. Offset mortgages can be a great way to save money on your mortgage interest payments, as well as provide you with the flexibility to access your savings if needed, a common use of an offset mortgage would be someone who saves a considerable amount to pay tax bills and wants to make use of these regular savings to reduce their mortgage payment.
What income can you use for a mortgage?
Income is one of the main factors lenders look at when deciding the affordability of a mortgage.
This includes but is not limited to basic salary, bonus, overtime, commission, car allowance, self-employed income, dividends, maintenance payments, child benefit, certain types of benefit income and personal independence payment. Private pensions and state pensions can also be into account. Income from investments such as rental properties may also be considered. What income lenders will look at is one of the most common questions we get asked so we will do a future article dedicated to this, as each lender will have their own policy around acceptable income types, so you may find you can use more than you have previously been made aware of.
Interest only or repayment mortgage?
With a repayment mortgage you pay capital and interest as part of your monthly payment so your balance will get smaller each month, and at the end of the term, there will be no outstanding debt. An interest-only mortgage means you only pay the interest and no capital, which means that the amount owed will not decrease and you will need to repay the full amount borrowed at the end of the term. An interest only mortgage will have a lower monthly payment amount but you will have to consider a vehicle to repay the loan at the end of the term, and lenders are likely to have minimum requirements for an interest only residential mortgage.
What is an Early Repayment Charge on a mortgage?
If you’re thinking about repaying some of your mortgage early, it’s important to be aware of any early repayment charges that might apply. An early repayment charge is a fee your mortgage lender charges if you repay part or all of your mortgage during the initial term. The initial term is the fixed period of your mortgage, during which time the interest rate is usually lower than the standard variable rate. Early repayment charges can apply even if you switch to another mortgage deal with the same lender.
The amount of the early repayment charge will depend on a number of factors, including the terms of your mortgage and how long you've been paying it off. It's important to check the small print of your mortgage contract before taking any action, as other charges or restrictions may apply. With this in mind, repaying some or all of your mortgage early could still save you money in the long run, even if there are charges to do so.
The mortgage industry is rapidly changing, which makes it challenging to keep you updated on everything happening. But now more than ever, why you are taking out a mortgage is just as important as the actual process. If you have any questions or concerns about anything related to mortgages, our team would be happy to help with no strings attached. We collectively have helped hundreds of people in the area with their property journey, and we’re excited to continue doing so.