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Seekers London
editorial..
mortgage myths..
There are many myths surrounding mortgages, qualifying for mortgages and how
lenders will base their decisions. Here are some of the most common potential
customers have when looking for the best mortgage available:
“First time buyers get a better deal”
The truth is in fact the opposite. Similar to car insurance providers,
mortgage companies will look more closely at applicants who do not have a
history that relates to the product applied for. Although FTB only products
do exist, they are normally priced higher than those that are open to all
applicants.
“If I don’t pay, they can always take the house.”
Mortgage lenders want to repossess the property no more than you want to
have it repossessed. They are not estate agents. They are banks and are in
the money business, not the property business. They want their money back
with their interest. Lenders will never approve a mortgage based upon the
ability to repossess.
“Self-cert means I don’t even have to have an
income.”
Not true. Self-cert enables you to state an income without having to prove
the amount stated. However, you will still have to prove the source of the
income, whether it be confirmation from an employer, accountant or the
Inland Revenue.
“I have good credit. This means I can get the best
rates.”
True, although good credit alone is not enough to qualify you for the
market’s lowest rates. You will still need a deposit (typically a minimum of
5%) and proof of adequate income along with ample job history.
“I don’t want to use X Mortgage Company. I heard
they will repossess me if I miss 1 payment.”
Lenders will only repossess as a last resort, and will only take legal
action if approx. 6 or more payments have been missed consistently without
any effort to rectify. Some lenders, especially those who specialise in the
sub-prime market may have repossession figures that are higher than
High-Street banks, but the type of loans they are taking on are of a greater
risk from day one. Lenders have strict laws they must adhere to which
protects home owners when carrying out the repossession process which would
not allow it to take place after only 1 or 2 missed payments.
“Interest-only means interest-free.”
Interest-only means you are only paying the interest portion of the amount
borrowed each month. As a result, the mortgage balance does not reduce until
a capital payment is made, or the mortgage is switched to a capital and
interest repayment method. It does not mean any payments you make will
reduce the mortgage balance and no interest is paid.
“The APR is what I should use to compare mortgage
deals.”
Although strictly speaking this is true and the regulatory authorities will
preach this, it paints a misleading picture of many of the mortgage products
you may consider – especially if you are considering fixed rate products.
This is because the APR is calculated across the full term of the mortgage,
not the amount of time you are likely to keep it for. For example, a fixed
rate of 5.5% lasting for 2 years, but with a term of 25 years may have an
APR of 7.5%, because it will take into consideration 23 years of the lenders
Standard Variable Rate (SVR) of say, 7.65%. This is also based upon 2
assumptions: 1) you will keep the product for the whole 25 years and never
change mortgages or move house, and 2) the SVR will never change over 25
years. As either or both of these are extremely unlikely to happen, you are
being asked to make a decision based upon estimated numbers. If you are
looking at the fixed, guaranteed rate and the shorter, more realistic
commitment, the APR for that two years will only be a fraction over the
pay-rate of 5.5%.
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