Mortgages may seem tricky to understand, what type of mortgages there are and how you can repay them is enough of a worry, but what else do you need to be aware of when taking out a mortgage? Let’s consider.
Annual Percentage Rate (APR) – The APR really is the interest rate over the period of the mortgage. It is the rate to take note of as it can be used to compare mortgages from different providers.
The APR takes into account the initial mortgage rate, the standard variable rate (SVR) and the mortgage fees. It does not take into account unknown factors, including early repayment charges.
Standard Variable Rate (SVR) – This is simply the basic mortgage rate offered by each of the lenders. It is notionally linked by the lender to the Bank of England base rate but it is set arbitrarily by each mortgage provider.
Mortgage Arrangement fees – these are fees charged by the mortgage provider to set up a mortgage or reserve funds for the mortgage at a specific rate. They can be significant, ranging up to around £1,000.
Mortgage Redemption penalties or overpayment charges – on most mortgage special offers if you overpay the mortgage by more than an agreed amount during the mortgage period then you will be charged a penalty, a redemption penalty or overpayment charge. Some mortgages apply this charge beyond the period of the mortgage offer. For example, you may have a 2 year fixed rate mortgage but the overpayment charge applies beyond 2 years.
Mortgage Insurance incentives – sometimes an mortgage offer will be linked to you taking out the mortgage providers home insurance. This may be a good thing but you need to check the value of this – how much will you save on the mortgage, how does the home insurance compare price and cover wise to that offered by other insurance companies?
Key Facts Illustrations – outline the key facts about the mortgage, including the cost of the mortgage, repayments, all fees and the interest rate, the APR.
Initial Disclosure Documents – give details about the mortgage providers services and whether they are tied to selling mortgage products from one company or whether they can offer mortgages from multiple companies.