Key To Mortgages : Put simply, your personal circumstances can change significantly over the term of a mortgage, and therefore it’s important to review all aspects of your mortgage, not just the interest rate. We change jobs, our income increases and decrease, we take employment breaks for various reasons such as time to raise children, time off due to illness or because we decide to travel the world for a period.
We may re-locate for work, meet a new partner who we want to move in with and add to the mortgage, marry, start a family, divorce the list goes on and on. In my experience, those who simply take a new product with their existing lender, usually just swap for a like for like a mortgage. Rarely is any thought given to reducing the mortgage term in order to pay less interest or reviewing their attitude to repayment risk and considering alternative mortgage
Key To Mortgages :
products or benefit periods. Rarely does anyone sit down and take the time to really think about what they need now, what’s important for the future and how to reduce the overall cost. This is great for the lender as it’s quick, easy business renewal with no risk associated with offering advice.
This direct to lender rate swap/product transfer is conducted on a non-advised basis, meaning no protection is offered by the Financial Conduct Authority.
As a professional adviser, we should never assume that everything has remained the same, I’m my opinion this is lazy advice! First and foremost, we should look at how your personal circumstances have changed and how that might impact your needs and wants moving forward. The aim must be to ensure long term affordability, whilst repaying the mortgage over the shortest possible term, in order to repay the
lowest amount of fees and interest for your borrowing.
A mortgage must reflect your attitude to risk and consider any foreseeable changes in your future circumstances. As we progress through our mortgage term, we quite often see our disposable income increase. This is due to children no longer being financially dependent, wage increases or even inheritance. It’s important to re-assess affordability each time you re-mortgage to establish exactly what you can afford to pay. Even
reducing your mortgage term by 1or 2 years each time could save you a significant amount of money over the entire term of your mortgage.
But what if the changes aren’t so positive, and your household income has reduced or even stopped. Firstly, don’t worry! There are options available to you. I recently completed a rate swap for an existing client whose personal circumstances had changed due to suffering a critical illness, his income was due to cease and earlier in the year he and his wife had given birth to a beautiful baby boy, meaning she was receiving statutory maternity pay. They were wrongly informed that they would have no choice but to stay on their current lender’s standard variable rate, which was significantly higher than their current fixed-rate mortgage payment. This, of course, would have
deepened their financial crisis and put their home at risk.
Whilst this is quite an extreme case, unfortunately, its quite common that circumstances change meaning you would no longer qualify for the mortgage you currently have. It’s not just your circumstances that may have changed either. Since then the financial crisis in 2008, we’ve seen increased regulation and lenders tightening up on certain types of lending. Interest-only mortgage lending is one of these areas. There are many people who have an existing interest-only mortgage who under the new lending rules would not able to obtain this type of mortgage today.
Firstly it’s important to look at what your current lender will offer and still compare this with the whole of market options. It may be that another lender is offering a more favorable product and you still meet their lending policy. However, if not, you would still be able to secure preferential rate with your current provider under the “mortgage prisoner rules” These rules are there to ensure that you are not penalized for such changes in circumstances and policy that means you have to pay more for
your borrowing. As long as you are maintaining your current, mortgage repayments and have not entered into a repayment arrangement with your provider, you have options. After all, if you are about to revert to a higher interest rate, it makes no sense for a lender to decline a new lower costing mortgage based on affordability. Under these rules, your current lender would continue to offer you the choice of mortgage products to ensure you are not adversely penalized. So in summary, for many people, your mortgage is your single biggest expenditure, so it should come as no surprise to know that this is where you can make your biggest single saving. Reviewing your existing mortgage arrangements on a regular basis can literally save you thousands.
Key To Mortgages :
In today’s competitive market place with hundreds of mortgage products and lenders
competing for your business, it makes sense to review what is on offer. Many people come to the end of an initial benefit period with their lender then revert to a higher interest rate paying more for their borrowing than need be. This doesn’t need to be the case. At Key To mortgages, we can search for mortgages from the whole of the market to ensure you never pay more than you need to. After all, I am sure we could all do with a little extra spending money in our pockets.
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