Buying your own home is exciting but can also be daunting. Rebekah Commane warns borrowers to be fully aware of the contents of the mortgage contract they sign
The expression ‘caveat emptor’ (Latin for “let the buyer beware”) has been around for centuries and it is no less relevant in today’s mortgage market. Nobody likes to read the small print. It’s time consuming, difficult to understand and longwinded. It’s deliberately designed this way so that it’s completely unappealing to read. But when it comes to signing up for something as long-term and life-impacting as a mortgage, always take the time to read the terms and conditions, and if there’s anything you don’t understand, ask a mortgage adviser.
Too good to be true
Some deals may seem too good to be true… that’s usually because they are! Recently borrowers have been warned that some mortgages with super-low rates like 2 per cent, or even lower, are not all they seem as arrangement fees on these deals can reach £2,000.
Don’t get me wrong, there are some very good deals out there that can allow those with smaller deposits to get on the housing ladder. But the prospect of being in a position to purchase a first property can bring out your blindside when it comes to the small print. It’s only natural that you’ll be thinking about all the possibilities and sense of fulfilment owning your own home can bring you.
Just be conscious of all the added extras that can be included on something that will most likely be the most expensive purchase of your life. Signing up for the wrong mortgage could be a detrimental mistake that could potentially cost you tens of thousands in avoidable charges.
Shopping around
When shopping around for your first mortgage, terms like ‘discounted rates’ or low fixed rates can seem very appealing. They attract you with low interest rates for a pre-defined period of time. But such deals can be subject to early redemption penalties, also known as discharge fees, redemption fees, deeds fees or sealing fees. So when you reach the end of your mortgage term you will automatically be switched to a standard variable rate, which may or may not be competitive in the market at the time. If you choose to change your mortgage type or switch to a different lender for a better rate, you may have to pay a sizeable sum as a penalty.
Of course you should ensure that the interest rate you pay is competitive but make sure that the savings you are making will not be lost, or even exceeded, in other payments.
Unfortunately, not many things are as simple as they first appear, and mortgages are no exception. While it may seem as straight-forward as saving a deposit, borrowing a lump sum and paying it back as quickly as you can, there are so many things to consider, which is why mortgage advisers are really essential in helping purchasing novices to avoid the many pitfalls.
As well as considering the interest rate, there are numerous other factors to consider. Charges will vary between providers and between mortgage types. Almost every provider will charge an arrangement fee. A mortgage survey, an essential part of purchasing a property, will be commissioned by your lender. The cost of your survey will depend on the value of your property, generally amounting to several hundred pounds.
Exclusions
If you take out mortgage insurance, always read the terms so you know what you are or aren’t covered for. Policies have a range of exclusions that you need to be aware of.
Most policies won’t let you claim if you become unemployed during a certain period after first taking out the policy – the ‘initial exclusion’ period. This is normally between 30 and 180 days. Some policies also have initial exclusion periods for accident and sickness claims.
If you have an ongoing health problem which you have experienced in the last 12 months it is likely this will affect your mortgage insurance, even if you are not suffering from it when you take out the policy.
Some policies will provide no cover at all for pre-existing medical conditions whereas others have strict conditions attached. For example, you won’t normally be able to claim for time off due to a pre-existing condition if it recurs within 12 or 24 months (depending on the policy) of taking out mortgage insurance.
So if you have a chronic health problem that means you may have to take time off work in the near future do your research as to what policy could cover you.
Remember, as with most things in life, you don’t get something for nothing, so if your mortgage deal seems like a hidden gem, you probably haven’t read all the small print. Make use of a good mortgage adviser, find your magnifying glass and take a few hours to read through every detail of the terms and conditions before signing your name on the dotted line.
Loading ...