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Mortgages

A Guide to Mortgages

Your home may be repossessed if you do not keep up repayments on your mortgage.

 

Our Approach

Our Approach

At Absolute Finance we appreciate that every client is unique and complex, which has led us to develop a highly innovative approach to mortgages. We believe it will significantly improve your chances of attaining a mortgage for the first time, a re-mortgage, additional mortgages (for professional investors), bridging loans, or for property development.

 

Our approach combines rigorous client assessment and independent market research to tailor the personalized mortgage delivered for each client. No matter what your personal requirement and how much you wish to borrow; we can work with you to attain the most appropriate mortgage within the market place.

 

At Absolute Finance we work with our clients to create tailored mortgage solutions, ensuring they meet their financial goals; and we're committed to ensuring that our clients enjoy the best financial planning service available.

 

As part of our service we also take the time to understand our client's unique needs and circumstances, so that we can provide them with the most suitable mortgage proposition; taking their personalized views and circumstances into consideration e.g. term, deposit (LTV (Loan to Value)), ethical views.

 

If you would like to discuss the range of mortgages available to you, please contact us for further information.

How Mortgages Work

How Mortgages Work

A mortgage is a loan to buy your home. You borrow money and pay it back with interest over a period of time (the 'mortgage term') that you agree with the lender - usually a bank or building society.

 

The loan is secured against your home so if for any reason you can't repay it, the bank or building society can sell your home to get back its money.


This guide is not for you if you want to take out a second mortgage on your home a buy-to-let mortgage.

 

How much can you borrow?
This depends on your personal circumstances, such as your income, your outgoings and whether you're buying alone or with a partner.

 

How to repay your mortgage
You can choose to pay your mortgage back in the following ways:
Repayment - your monthly payment is split between paying off the loan, and paying off the interest you
owe on the loan;
Interest-only - your monthly payment pays only the interest charges on your loan, and you must
arrange some other way to repay the loan, or
A combination of the two.

 

The standard mortgage term is 25 years, but you can choose a different term if it suits you and the lender agrees that you can afford it.

 

With a shorter tem, you'll have higher monthly payments but you pay less in total. With a longer term, you'll pay less each month but more in total.

 

Beware of having a mortgage term that continues past the age you retire unless you're sure you'll be able to afford the payments then.

 

Mortgage features and interest-rate deals
Once you've decided how to repay your mortgage, you can choose from difference features and interest-rate deals.

 

Where to get help
General or Mortgage Help

Whether you're buying your first home or want to change your mortgage, our trained financial advisers can help you with your questions; please contact us for further information.

 

Note:
The FCA regulates the way most mortgages are sold, but it doesn't regulate second charge and most buy-to-let mortgages. You are responsible for paying back your mortgage -think carefully about which repayment options will suit you. If you get into arrears (fall behind with your payments), the lender can, as a last resort, sell your home and get its money back. Read the documents you'll be given -they contain important information for you

Key things to think about

Key things to think about

How much can you borrow
Lenders should lend responsibly. This means that they should consider whether you can afford the mortgage repayments now and throughout the mortgage term. For example, some lenders offer a discounted rate to start with, but will you be able to afford the repayments when the discount ends?

 

Mortgage lenders have in the past offered to lend a sum based on a multiple of your salary (before tax).

 

If you have other money coming in, such as bonuses, overtime or commission, lenders may take account of only half of this because it isn't guaranteed income.

 

Recently it has become more common for lenders to make an affordability assessment when calculating how much they will lend you.

 

Each lender has its own method, but generally they all try to calculate your disposable income, taking account of:
your total income;
any money you owe, such as loans and outstanding credit card balances; and
household bills and living expenses.

 

You can use our online Mortgage calculator to find out much your monthly mortgage repayments may be. This can help you estimate the size of mortgage you can afford at a particular interest rate.

 

Think carefully about how much you can afford.

 

Note:
Don't be tempted to overstake your income or apply for a buy-to-let mortgage to get a very large loan because you could end up with a mortgage you can't afford and could lose your home; you'll also be committing fraud and could get a criminal record.

 

How to repay your mortgage
You can choose to pay your mortgage back in the following ways:
repayment;
interest only; or
a combination of the two.

 

Repayment (also called a capital-and-interest' loan)
The payments you make to the lender every month reduce the amount you owe as well as paying the interest on loan. So each month you pay off a small part of your mortgage.

 

It's a simple, clear approach - you can see your loan getting smaller. If you make all the agreed payments, the loan will be fully paid off by the end of the mortgage term.

 

However, in the early years your repayments will be mainly interest, so if you want to repay the mortgage or move house, you'll find that the amount you owe won't have gone down by very much.

 

Interest-only
As the name suggests, your monthly payment only pays the interest charges on your loan - you don't reduce the loan itself. Because you're only paying off the interest your monthly payments will be lower than an equivalent repayment loan. It's very important you arrange some other way to repay the loan at the end of the term, for example, through an investment or savings plan.

 

Make sure you know from the outset how you intend to pay off the loan.

 

Examples are to:

Save regularly - so you build up a lump sum that will pay of the loan at the end of the term. You should check the progress of the plan regularly. If it doesn't grow as expected, you will have a shortfall and you'll need to think about ways of making this up.

 

Convert later to a repayment mortgage - This might be a suitable option if, say, your earnings are low now but you expect them to be much higher in future. However, because you're putting off repaying the loan you will end up paying more interest and more in total for your mortgage over the term.

 

Use a lump sum from somewhere else - say, an inheritance, or selling something such as another property or a business. This may be risky - for example, how sure are you that you will get an inheritance; or what happens if your business fails.

 

Sell the mortgaged property to pay off the loan - This is suitable only if you won't need to live in the property - for example, if it is a buy-to-let property or a second home.

 

Note:
Think carefully about relying on a rise in your property's value, or using an investment or savings plan to build up the money you need to repay the mortgage.

 

As investment plan invests in the stock market and the value of your investment can go up and down. Property prices can fall too, and property can take a long time to sell when prices are falling, so you may find it harder to minimise a heavy fall in price. If you are not comfortable with taking such risk, think about a repayment mortgage instead.

 

A combination of repayment and interest-only methods
Before taking out the mortgage, you agree with the lender how the loan will be split between the two ways of paying it back.

 

Note:
Check that you understand how the 'repayment' and 'interest-only' options work, and what you must do to ensure you pay off your mortgage at the end of the term.

 

Check that you borrow what you can afford to pay back. Don't be tempted to overstate your income or apply for a buy-to-let mortgage to get a bigger loan. You could end up with a loan you can afford. You'll also be committing fraud and could get a criminal record.

Where to get Help

Where to get Help - How Absolute Finance can help you make the right decision

Information or advice?
When you ask about a mortgage, the lender or mortgage adviser will normally give you information. This may include printed leaflets, and the person you speak to may describe the mortgage or service. They may also ask you questions to narrow down the choice of mortgage. But this doesn't mean you're getting advice.

 

Advice involves the firm finding out your specific needs and assessing your personal circumstance in order to recommend a mortgage that is suitable for you.

 

If you're uncertain about which mortgage is right for you, then consider getting advice. As not all firms offer advice, make sure that the firm can provide this service before making an appointment.

 

Buying with advice
Only FCA-regulated firms and their agents should give advice about mortgages, and these firms must follow the FCA's standards when dealing with you. So check they are regulated, and therefore on the FCA Register, before you deal with them.

 

If the product they recommend is unsuitable for the specific needs and circumstances based on the information you gave them, you can complain to the firm and expect compensation for any loss.

 

Information you will get
Whether or not you take advice you should get two 'keyfacts' documents. This information is important because it explains the service you will receive and helps you to compare products


about our mortgage service

This document explains the service being offered and whether:
you'll have to pay for it - and if so how much
the firm offers products from the whole market, a limited number of companies, or a single company. If
you want information or advice based on the full range of schemes choose a firm that offers products
from the whole market; and
the firms offers advice

 

Use the documents to help you shop around to choose the service you want and the firm you want to deal with. You do not have to use an estate agent's adviser.


about this mortgage (KFI)

This is sometimes called a Keyfacts Illustration or KFI. You will get a KFI if you ask for a written mortgage quotation, whether or not you choose to get advice. It summarises the most important features and costs of the mortgage in a standard way so you can compare it with other similar mortgages.

 

To help you shop around, ask for a KFI when you know how much you might want to borrow and the type of mortgage you want. By comparing KFIs for different mortgages you can work out which one is best for you. Your lender or mortgage adviser mush always give you a KFI before you apply for a mortgage, so you can make sure it's right for you.

 

Buying without advice
You don't have to take advice, but if you don't and the mortgage you choose turns out to be unsuitable, you will have fewer grounds for complaint.

 

If you do not have grounds, it is likely that you will have to pay to switch your mortgage.

 

Poor credit history
Whether or not you take advice, the KFI mush say if the mortgage is designed for someone with current or previous financial difficulties.

 

Each lender considers mortgage applications in its own way, and it may look at a number of factors. For example, some lenders may ignore minor credit problems in the past if all other aspects of your application are good (such as your employment history, income, and record of making mortgage or rental payments).

Fees and Costs

Fees and Costs

Buying a house is always expensive, but the costs of getting a mortgage can very between products and providers. Make sure you shop around and get the best deal.

 

All the mortgage-related fees you must pay are set out clearly in the KFI (which the lender of mortgage adviser gives you).

 

But the KFI won't include other costs such as stamp duty land tax or your conveyancing fees see below:

 

 

Adding these to the mortgage
Often you can add some fees charged by the adviser and lender to the mortgage. This means that you don't have to pay these fees upfront. But will cost you more in the long run, as you will pay interest on the fess over the life of the mortgage. If you want to do this, ask your lender or adviser to give you a KFI on this basis. Or if they have already done so, as for a KFI where the fess aren't added so you can see the difference.

 

Compare the costs in the Overall cost of this mortgage and What will you need to pay sections of the KFI before you decide what to do.

 

Insurance

You can buy many types of insurance with a mortgage. Your adviser or lender may try to sell you a range of policies. You must have some to get the mortgage, some are optional and others may depend on your circumstances. The FCA regulates the sale of most types of general insurance.

 

Building Insurance Most people need building insurance to cover their home in the case the building is damaged or destroyed while they have a mortgage.

 

If you buy a leasehold property (such as in a block of flats), the freeholder may have arranges building insurance for the whole block, in which case you may not need your own building insurance policy.

 

Some lenders insist they arrange your cover. This is called tied insurance.

 

Others insist you take insurance but you don't have to arrange it with them. This is called compulsory insurance. If you decide to arrange your own cover, check whether the mortgage company will charge you a fee for doing so. The Insurance section of the KFI shows you if you must have tied or compulsory insurance, and other relevant information.

 

Other insurance

There are various types of insurance that will pay off your mortgage or meet the monthly payments if something unexpected happens, such as you have an accident; get sick, lose your job or die.

 

Whether they are right for you depends on your personal circumstances - ask your adviser for more information.

 

You may also want contents insurance to cover your furniture and possessions against loss, theft or damage.

 

Please contact us for further information about different types of insurance.

Fees and costs included in the document

Fees and costs included in the document

 

Mortgage features and interest-rate deals

Mortgage features and interest-rate deals

As well as choosing between a repayment and interest-only mortgage, you can choose difference features and interest-rate deals to go with it.

 

Offset Mortgage
With an offset mortgage, your bank current account, savings accounts, or both are linked to your mortgage. Your accounts are usually, but not always, held with the mortgage lender. Each month, the mortgage lender reduces the amount you owe on your mortgage by the amount in these accounts; it then works out the interest due on the balance of the mortgage. So, as your current account and savings balances go up, you pay less interest on your mortgage. As they go down, you pay more interest - see table below:

 

 

Current-account mortgages
A current-account mortgage is similar to an offset mortgage in that it takes the balance of your account off your mortgage.

 

But, in this case, rather than your mortgage and current account being separate pots of money, they are usually combines into one account. This means that the account acts like one big overdraft.

 

The mortgage lender draws up a plan for you that includes the minimum amount you must have in your account each month to repay your mortgage over the agreed mortgage term. If you leave more than this in your account each month, they you pay less interest and may pay off your mortgage early. But if you leave less in your account, you will end up paying more for your mortgage.

 

The Description of this mortgage section of the KFI tells whether it is a current account or offset mortgage, and whether it is a condition of the mortgage to have a current account with the lender.

 

Flexible Mortgage
This type of mortgage offers a number of flexible features (described below):

You can change your mortgage payments to suit your ability to pay.

 

Several flexible features are becoming more common, and they aren't confined to loans that have 'flexible' in their name. Consider which of the features below are important to you.

 

Over payments
You can pay more than the normal monthly mortgage payment; pay a lump sum off the loan, or both.

 

Overpayments can have two efforts:
if you pay off a lump sum you benefit straight away from paying less interest each month (because the
amount you owe is less); or
if you continue paying at the higher level, you will pay off you loan more quickly. Sometimes you can
cut years off your mortgage if you overpay regularly.

 

To get the benefit of overpayments straight away, choose a mortgage on which interest is calculated daily or monthly.

 

Truly flexible mortgages won't penalise you for making overpayments. The What happens if you want to make overpayments? section of the KFI tells you whether there are any restrictions.

 

Underpayments and payment holidays
You pay less than the normal monthly payments (known as underpayment) for a limited period say, 6 or 12 months. You may even be able to stop making payments altogether for a while (a 'payment holiday').

 

While you are underpaying or taking a payment holiday, interest will still be building up on the remaining loan. This means you must make higher repayments in future to get back on track. Or you may be able to extend the term of your mortgage to keep the normal repayments affordable. Either way, you will usually end up paying more for you mortgage in the long run.

 

This could be useful if, say, you lose your job or take a time out to care for a child. Most lenders require you to have built up some overpayments first.

 

Borrowing extra (sometimes called 'loan drawdown')
You can borrow extra without further approval from your lender, as long as the total loan is below an overall limit. Or, you may be able to 'borrow back' against earlier overpayments. With a more traditional mortgage, you usually need to apply for a top-up loan, which could take longer to arrange.

 

The Additional features section of the KFI tells you whether the mortgage offers these features and what restrictions apply.

 

These flexible features are just one aspect of a mortgage. You also need to consider the other features - such as the cost of the mortgage, and the type of interest rate. These are set out in the KFI too.

 

Cashback mortgage
Your lender may offer this with any of the interest deals. The lender pays you a larger sum (for example 3-5% of the amount you borrow) shortly after you take out the loan. If you move to another lender in the early years, you much repay some of all of the cashback you received.

 

Buy-to-let mortgages and second-charge mortgages
The FCA regulates the way most mortgages are sold, but it doesn't regulate the mortgage if one of both or these points apply:
the mortgage is a second charge on you home -this means if you already have a loan secured against your home; or
you or a family member will use less than 40% of the properly on which the loan is secured as a home by you - for example, if you're renting out the property.

 

This means for second-charge and most buy-to-let mortgages the firm will not give you a KFI. It also means you have less protection in things go wrong.

Interest-rate deals

Interest-rate deals

Whichever mortgage you choose, you'll then need to look at the interest-rate deals on offer.

 

Mortgage lenders offer different interest rates and also different deals.

 

Here we tell you about the most common types to help you narrow down your choice.

 

You have two different decisions when choosing an interest-rate deal:
whether to choose a fixed rate or a variable rate mortgage, and
whether to choose a short-term or longer-term deal.

 

Each one has advantages. The best for you depends on your particular needs and circumstances.

 

Note:
Don't choose an interest deal solely for the cheapest initial monthly payments. Consider what the mortgage is actually going to cost you over the longer term and whether it is the most suitable for you.

 

Mortgage rates are related to interest rate set by the Bank of England. It has been at a historically low level, but don't assume it will stay like this. A rise in the rate is likely to affect you, unless you have a fixed rate deal for the full mortgage term.

 

What looks like a more expensive mortgage today, because it has a higher monthly repayment, may end up being more suitable for you.

 

For example, it may:
have a long term fixed rate, which protects you against rises in interest rates; or
cap monthly payments, even if interest rates rise unexpectedly; or
have lower initial charges or no early-repayment charges, if you want to repay early or make over payments.

 

You should always can compare mortgages features and costs, please contact us for further assistance.

 

Note:
With a variable-rate deal your monthly payments may rise, so you may be unable to pay.

 

What are the risks?
Your income may drop or interest rates may change significantly, especially at the end of a special interest rate deal.

 

The Are you comfortable with the risks? section of the KFI will give you an example of how much your monthly payment will go up if interest rates rise by 1%. You can use this to work out how much your payments will rise if rates increase by more than this.

Interest-rate deals - how do they work and which is right for you?

Interest-rate deals - how do they work and which is right for you?

Shop around

Shop around

Many mortgage deals are available. Lenders can choose how they want to make their deals available - some may only be available through a broker; and some only directly from the lender. Whichever route you take, it always pays to shop around, and here is some source of information you might use.

 

Making sense of mortgage adverts
A firm selling mortgages must make sure that adverts, brochures and other promotions are clear, fair and not misleading.

 

If you think an advert doesn't meet these criteria, then tell the FCA.

 

Comparing mortgages
Any newspapers carry tables in their personal finance section s listing 'best buy' mortgages. Don't assume that these deals are the best for you, as very often they won't consider all the products available in the market.

 

At Absolute Finance we do the research for you, from the whole of market, to ensure that our recommendation takes into consideration your personal and unique circumstances. We are not tied/affiliated to any bank, building society or any other financial institution; so you can be confident that our advice is impartial; please contact us for further information.

 

Only deal with regulated firms
Mortgage advisers must be regulated by the FCA or must be agents for other regulated firms. This means they have to meet certain standards when dealing with you. For example, they have to give you certain documents with the sign. These will help you shop around and compare what's on offer. Make sure you read them as they contain important information about the service you will receive and the cost involved.

 

Agreement in principal and credit checks
A lender or mortgage adviser may offer to give you an approval, agreement in principal (AIP) or a mortgage promise. This is a certificate that sets out the amount the provider will probably be willing to lend you based on certain terms and conditions. This can be helpful when you have chosen your mortgage and are ready to make an offer on a property.

 

The firm will usually do a credit check before giving you an AIP. This will register on your credit file.

 

The KFI can help you compare mortgages. If you are shopping around but not ready to apply, the firm you are dealing with should be able to give you a KFI without doing a credit check. Tell the firm if you don't want them to check your credit rating at this stage.

FAQ (Frequently Answered Questions)

FAQ (Frequently Answered Questions)

How can I prepare for buying a property?
Build up your savings but if you've got loans or credits it makes sense to repay them first. This is because the interest you pay to borrow is usually higher than the interest you get on savings accounts.
Plan your budget based on the most you may have to pay for a mortgage, and don't forget to include mortgage-related costs and fees.
Try not to take the maximum mortgage on offer.
Think about whether you need a fixed rate so your mortgage payments will stay the same for a set period.
Work out how long you could live on your savings if you iost your job.
Check what benefits your employer will provide if you get ill
Consider taking out insurance in case you are made redundant, get critically ill, or have an accident.
Ensure you know how much your repayments go up by, should interest rates rise.

 

How can I review my mortgage?
You'll get a statement at least once a year. Check to see what you're paying, when any special deal ends, what happens to your mortgage when it ends, and the balance of the mortgage left to pay.

 

Am I still on a special deal or has it ended?
Check your statement to see if you are still on a good deal, note when this finishes, and remember to review it again closer to this time.

 

Does my mortgage have an early-repayment charge?
Check the KFI. Your annual statement will also show id there is an early-repayment charge, how much (if applicable) and when it ends - make a note of the date, in case you want to switch to a new mortgage.

 

Should I switch my mortgage?
You can change your mortgage to get a better deal – know as switching. It makes sense to start shopping around a few months before a special rate deal or a tie-in period ends. But if they have many more years to run it still may pay to shop around sooner. You don't have to move house to move your mortgage.

 

Switching can cut your monthly payments. But you'll need to weigh up these monthly savings or other benefits against the costs of making the switch.

 

Get a KFI for mortgages that you are interested in, and check that you will save money by switching.

 

What will switching cost me?
Especially in the early years, your mortgage might have early-repayment charges. These can be hefty if you are still on a special deal, such as fixed, discounted or cashback mortgage. Even if there are no early-repayment charges, your lender might make an administration charge – this could be quite expensive.

 

If you are switching to a new lender, they must value your home and there will be legal costs to pay. With some mortgage deals, the lender will pay these fees for you.

 

Make sure you get back the costs of switching before any special deal ends – for example, in less than two years if you switch to a two-year discounted rate.

 

If you are switching lender, check whether they will charge you interest to the end of the month even if you pay off the mortgage earlier by switching. If they do, make sure you switch your mortgage at the end of the month.

 

Remember that if a deal has no fees, the rate might not be as good as the one that does.

 

Note:
When you've found a good deal, it's worth going back to your lender to see if it will offer you a similar deal to keep you as a customer.

If things go wrong

If things go wrong

Complaints and compensation
If something goes wrong, contact your adviser or lender to put it right. They must follow a set of procedures when dealing with complaints.

 

If you're not satisfied with their response, you maybe be able to take the matter to the FOS (Financial Ombudsman Service). The adviser or lender will give you details.

 

If the adviser or lender has stopped trading and can't (or is likely to be unable to) pay claims against it, the FSCS (Financial Services Compensation Scheme) may be ale to help.

 

Both services are free to consumers.

You won't lose your home simply because a lender stops trading, but you must continue to pay your mortgage.

 

Mortgage difficulties
If you can't pay your mortgage, talk to your lender - they have a set of procedures for dealing with this.

 

You may also be able to get state benefits - but sometimes only after an initial waiting period

 

For more information contact your local Jobcentre Plus (details will be in your phonebook).

 

Disclaimer

Disclaimer

Please note that the information contained in the sections above is to help you to think about your individual mortgage requirements/needs. It is not designed to provide specific advice. If you are unsure of your financial position or about which type of mortgage is right for you, please contact us for further information.


All of the content of the articles above is for your general information and use only, and is not intended to address your particular requirements. They should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles. The pension and tax rules are subject to change by the government. Hence, thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. Tax reliefs and state benefits referred to are those currently applying (at time of printing). Their value depends on your individual circumstances. The performance of the investment funds will have an impact on the amount of income you receive. If the investments perform poorly, the level of income may not be sustainable. The value of investments can fall as well as rise and any income from them is not guaranteed. You should be prepared to lose your investment. Past performance is not a guide to future performance.

 

 

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