What is a Mortgage – A simple guide
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A mortgage is a loan that is ‘secured’ against the value of your property.
A mortgage is a loan, that is ‘secured’ against the value of your home. In this simple guide we look at what a mortgage is, how it fits in to the conveyancing process, how your conveyancing solicitor is involved (and not) with your mortgage, and how your home is at risk if you fail to keep up repayments on your mortgage.
What is a mortgage?
A mortgage is simply a loan secured against the value of your home.
Who lends mortgage money?
Most high street banks provide mortgages as do some specialist lenders.
What does ‘secured loan’ mean?
A mortgage is a formal legal ‘charge’ against the land or property in question. Put simply, it means if you fail to pay your mortgage, the lender has the right to repossess it from you, and sell it recover the outstanding loan amounts and any costs they incur repossessing the property (eg legal fees, interest, and so on).
When should I apply for my Mortgage?
You should establish how much you can borrow before you start house hunting! No point in finding the home of your dreams only to find you can not afford it!
How much Mortgage can I borrow?
Each lender will have their own lending criteria around affordability. They don’t want to see you being unable to afford the loan! In the good ol days (groan!), lending tended to be on the simple maths of 3 times earnings less borrowing (credit cards etc). The affordability criteria is a little more sophisticated now.
Will my Credit Rating stop me getting a Mortgage?
Credit ratings is (obviously) something lenders will look at. They don’t want you to borrow sums you can not afford to repay. No lender sets out with the intentions of you defaulting – they want you to repay their loan!
What is a Mortgage Broker?
A mortgage broker is like a financial advisor that specialises in mortgages.
What is the difference between an independent Mortgage Broker and a tied Mortgage Broker?
An independent mortgage broker will have access o the whole lending market – ie all lenders. A tied broker will work for just one lender and so will only recommend products from their own employer!
How does my Mortgage Broker get paid?
Most brokers are paid by the lender in some form or other. As a matter of their regulatory requirements, all details of how they will be paid should be disclosed to you at the outset with their terms of business.
Can I apply direct to a lender?
Yes, you can apply directly and there is no requirement to use a mortgage broker.
How much Loan to Value (LTV) can I get?
This will depend on a number of things including your earnings, the value of the property, and the lender and product you are using. As a general rule of thumb lenders will offer loan to value of anything up to 80-90% of the total value of the property.
What is the Mortgage Rate?
This is the % of interest you will pay against outstanding amounts owed on your mortgage throughout its life.
Can I fix my Mortgage Rate?
Yes – many lenders will offer fixed rate periods.
What is a Variable Rate Mortgage?
A variable rate mortgage increases and decreases with national interest rates.
What is a Fixed Rate Mortgage?
The clue is in the title – the rate is fixed and will not vary even if interest rates do.
What is the benefit of a Fixed Rate Mortgage?
The benefit is budgeting – you know how much you will owe irrespective of interest rates.
When should I take a Fixed Rate Mortgage?
Any decisions around what product suits you is something you should think carefully about and ultimately take independent financial advice about. As lawyers we can not advise clients on the particular merits of one product over the next. As a general rule of thumb, fixed rate mortgages may offer benefits to those who want to fix their budgets moving forward, and/or when it is looking like that interest rates are likely to rise.
What is an Interest Only Mortgage?
An interest only mortgage is a mortgage against which you only repay the interest, leaving all capital outstanding until the end of the term. Although this reduces your monthly repayments, it leaves the whole capital sum outstanding until the end of the term at which point you have to find that capital sum to repay it. These used to be popular mortgages to be taken alongside investments such as endowment policies which would repay at the end of the term of the mortgage – often leaving a residue for the borrower to enjoy too!
Will fixing my Mortgage Rate give a Penalty if I leave early?
Generally yes – fixed periods of interest will include penalties for leaving the loan (eg if you move or re-mortgage) during the fixed period.
Does Loan to Value (LTV) impact Interest Rates?
Often – yes, the lower the LTV the lower the mortgage or interest rate.
Mortgage Rate is the amount of interest you will pay.
What is a formal Mortgage Offer?
A formal mortgage offer is the definite go ahead from your lender that they will lend you the money to buy your dream home.
When do I need a formal Mortgage Offer by?
Ideally, you should have your formal mortgage offer before the conveyancing process starts.
Does my formal Mortgage Offer last indefinitely?
No! All mortgage offers will come with an expiry date! You should be very clear on this and it is YOUR responsibility to make sure it does not expire ahead of buying your house.
Who gets a copy of my Mortgage Offer?
You are sent a copy of your mortgage offer, as is your conveyancing solicitor.
What does my Solicitor do with my Mortgage Offer?
Your solicitor is NOT going to advise you on the suitability of the mortgage for you – ie they will NOT be giving you financial advice. However, they will highlight for you the basic terms and in particular the pitfalls if you fail to keep up repayments.
What does Jointly & Severally liable mean for Joint Borrowers?
This means that if one of your runs off never to be seen again, the other remains liable for the whole amount!
Does my Solicitor also act for my Lender?
Yes, and odd as it seems, when you instruct your solicitor they will also then act for your lender. Their responsibility (to your lender) is simply to confirm that the legal title is sound, and to then secure the mortgage against the property at HM Land Registry when they register you as the owner(s).
What is a Mortgage Valuation?
A mortgage valuation is done by a surveyor to establish the value of the property for the benefit of your lender.
Will I have to pay for the Mortgage Valuation?
Probably yes – but it is down to the particular lender and their policy on each product.
When should I get a Mortgage Valuation?
Your lender will arrange this and it is likely to be during the conveyancing process but before exchange of contracts.
How will my Solicitor get the Mortgage Money from my Lender?
Your solicitor will be sent the mortgage money usually the day before completion.
Got any questions about the legal side of Mortgages?
If this article (or any other on our site) has not answered your questions on the legal side of mortgages do reach out! Our expert conveyancing solicitors are here to help!
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