As you may know, my life before kids was in financial services, covering lots of areas and products, but specialising in mortgages and related insurances. I was a co-creator in deciding how mortgage advice was given across our branch network, and then coached, managed and supervised the advisors to deliver it. So I know what I’m on about..!!
A mortgage and its insurances are often the biggest outgoing for most. This was the first thing I looked at when I decided to leave my job. We were already on a scheme that suited us, so no adjustments were necessary there, so I extended the term to reduce the monthly payments and utilised the 3 months per year payment holiday option. A lot of people forget about this, don’t know about it or are worried about the impact it’ll have by doing it. Now not all mortgages will allow it, but many current schemes have this option, and though it is true that there is extra interest incurred over the term of the mortgage, it’s benefiting us now, when we need it most. I also reviewed the insurances that go with it, as my job changed and the term changed, so it was important to adjust them.
Have you looked at yours? Are you needing to borrow more, move house or change your lender? I’d like to share a few tips if you’re about to go into this and are a little bamboozled by it all..
1. Mortgage advisors want to say ‘yes’! Long gone are the days of going in nervously to see the bank manager and being approved. You have the upper hand here as people want the business. No need to be nervous or hide anything – it makes it harder for everyone! Be honest, be clear about what you’re looking for and ask for advice.
2. How do you know the advice is good? If an advisor takes the time to ask you questions, understand what you’re needing to do and your current and potential future situations, they should be able to recommend a mortgage scheme and relevant insurances that suit you and, crucially, they should be able to explain why it suits you specifically. If the ‘reason’ they give is ‘this is the best deal/best rate’ or even worse, there is no reason given, the advice isn’t looking great. Those things are fine as an explanation of what it is, but why best for you? If you’re not clear, ask them again.
3. Ask about what happens when the scheme you’ve decided to go for ends. Unless you’ve the inclination and organisation to shop around and switch lenders (remortgage) when your scheme ends, make sure the lender you choose will continue to look after you. Some will only offer the best rates to new customers, which is all well and good if you’re planning to keep switching, but really frustrating if you don’t want the hassle or expense of doing this. Ask your advisor whether existing borrowers get the same/better deals than new customers.
4. Do listen and really think about what insurances you may need. I used to recommend them to my customers and point out that whilst the sale would be nice, it kind of made no odds to me, but will be a huge deal to them if they get into a pickle. And yes, despite my thriftiness and need to cut back, I’ve still kept all life, critical illness and income cover in place. Why? I’m not prepared to risk losing our home if the worst does happen, to save a few pounds each month.
5. Most people arrange their mortgage on a repayment basis. That is, each month over the term of their loan, they’ll be steadily repaying the loan back, paying both capital and interest. The other option is an interest-only mortgage. This would mean you’re only paying the lender interest on the loan, so your actual debt will not reduce at all – you borrow £100k, after 20 years of payments, you’ll still owe £100k. Your payments back will obviously be lower than if you’re paying both capital and interest, so this can be a tempting option. To do this, you must have a method to pay back that £100k – an endowment, pension, ISAs etc. It’s riskier, and please, please, only go for interest only if you’ve a savings plan or something in place. If your advisor recommends this without one, just to make your payments lower, steer well clear.
There’s also quite a bit of jargon surrounding mortgages, and whilst lenders do strive to use plain English, it can often still be a bit confusing. If you’re not sure, do ask.
It’s a huge area, often confusing, but as it’s likely to be your biggest outgoing, it’s always worth investing some time into getting it right for you.
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