FOLLOWING last week’s coverage on the benefits/advantages to use a mortgage broker rather than going to a high street, I mentioned I would cover the savings in rate charges. They are quite staggering, so hang on in while I ramble back over a couple of points I’ve missed.
While I mentioned last week that the maximum mortgage term was 40 years, I forgot to also mention the minimum term, which is as low as one year with some lenders.
In terms of maximum age, I also forgot to mention that one lender allows lending up to age 95.
I covered the restrictions on borrowing if you wished to apply for an interest only mortgage. There are plenty of lenders that have maximum borrowing levels (the amount) but there are others with no minimums at all, so the broker can direct you there.
There. That’s covered the bits I missed last week. My excuse – I was on holiday, sat in a restaurant in Sardinia with one eye on the menu (food and wine).
Some readers asked about the benefits of interest only mortgages, so I thought I would explain.
With a capital and repayment mortgage, you are contractually obliged to make both the capital part, as well as the interest. The good thing is, at some point it’s gone. The downside is that if you don’t make the full payment, you will fall into arrears. This will affect your credit score and ability to borrow in future. It’s also stressful.
What breaks most businesses and families’ finances is cashflow, not the assets you own.
You may have a mortgage of £200,000 against a house valued at £500,000, thereby having £300,000 equity, but if you are struggling with a wage cut, inflation and higher mortgage rates, you may not be able to make payments.
Having an interest only mortgage will mean you have lower contractual payments, and so you aren’t under as much pressure. If you save the extra you would have been paying on a repayment mortgage, that can be set aside for cashflow on a rainy day, or the current ‘flash-floods’.
That is often why mortgagees save into a tax free ISA and allow a pot to build up which they can use to repay the debt at the end of the term, or dip into it when boats are floating down your street.
Now to apathy. As you will have seen for the last 25 years, I promote the services of every Independent Financial Adviser, not just my company. It’s so vital you use an adviser who has access to the whole market and is acting for you, rather than the firm they work for.
Some advisers ask why I am promoting them as competitors and I always respond that the biggest competitor is customer apathy, not another adviser. I will continue to promote them.
Apathy is when we think there just isn’t that much difference between one lender/investment firm or another, and we are charged money that could go to a more deserving cause (see Sardinia above). Strap yourself in.
I’ll compare some of the differences between the typical extra costs on the high street or going to an independent mortgage broker and asking them to find the best rates for you.
Using an example of the average £279,000 average mortgage, the lowest five-year fixed rate mortgage with an ‘independent’ would save you £7,860 versus the typical high street bank.
Most people should use a broker to check their mortgage against the market each year, but lots are caught with the expensive apathy.
If a customer took out a standard variable rate, for 25 years, for example, the best rate with an independent broker could save you £160,800 over that term, versus a typical high street lender.
Remember, some lenders also offer better exclusive terms to brokers that are not available in their local branch.
That’s a lot of savings to be used elsewhere.
Oh, and when in Sardinia, I recommend Cannonau for red wine, and Vermentino for the white. All the food is lovely.
:: Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you would like help with your mortgage email my mortgage director Pat Greene on firstname.lastname@example.org or call 028 6863 2692.