Important questions to ask your mortgage broker
Hey gus,
Being from a mortgage broking and mortgage packaging background I have substantial experience in putting together deals to buy property, I call this ’structuring’.
Sometimes I take it for granted that mortgage brokers have as much experience as I and I assume they will structure a deal in a way similar to my expectations. This is often far from the truth.
Often I will receive calls from Brokers telling me that my client cannot get a mortgage or cannot get the mortgage l have requested when in fact it is just that the broker doesn’t understand the structure.
As part of my position I take particular attention to staying up to date with mortgages. I need too! Structure is the most important thing to consider when buying a property.
My biggest lesson when I was an estate agent was the deal isn’t done until you get the finance. This was my driving factor on leaving real estate and moving to mortgages. Being the broker left me in control of the mortgages.
Anyway the whole point here is that most of us take it for granted that mortgage brokers know what they are doing, that they will provide the best product available. In most cases they most definitely will but that doesn’t mean that you shouldn’t understand each aspect of the product you are using.
Here’s my quick overview of a lot of the terms you will come across as you arrange a mortgage:
Is it possible to refinance to flexible/offset mortgage?
This is an integral part of creating lifestyle options. A flexible mortgage is very similar to a gigantic credit card. You have your limit, which is normally 85%-90% of the value of your home and you have your balance owing. The difference between the two is the ‘flexible’ aspect of your loan.
You are free to pay as little or as much as you want back and your monthly repayments will normally be the interest component of what’s owed.
Is it a Self Certification or Full doc mortgage?
A self cert loan is normally for those that are self employed and cannot proof their income through normal payslips and P60s. A full doc is simply where you can provide this information.
What interest rate options do I have?
You have 3 options on how to structure your interest rate. Either fixed, variable or combination.
- Fixed Rate interest – This is where your rate will be fixed at a certain rate of interest for a certain period of time.
- Variable Rate interest – This will normally be set against a certain standard and will increase or decrease in line with this standard. Most if not all mortgages in the UK are pegged against the Bank of England base rate.
- Combo Rate – This is the ability to fix a portion and leave a portion as variable.
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Can I get a cheque book attached to the loan?
This is a great option when you are building a portfolio it gives you a huge amount of flexibility to place reservations, deposits, and complete on properties. You can also pay the ground rent and service charges directly from your mortgage.
Does the loan have internet banking access?
Whilst not essential this is a great bonus and allows you easily track your situation and cash flow.
What is the redemption or early termination payment structure if any?
This is an amount you pay to the lender if you refinance or otherwise change your mortgage in anyway. It is essential you ask about these prior to choosing which loan is most appropriate for you.
What is the minimum loan amount or drawdown?
This generally is the minimum amount of mortgage that you will be required to keep.
What is the minimum redraw amount?
This is generally the minimum amount you are able to redraw at any one time. You of course must have the balance of funds available.
What is the minimum lump sum payment?
This is the minimum amount that you can repay as a one off payment.
Do we have the option of an interest only mortgage?
This simply means that your repayment will be the total amount borrowed multiplied by the interest rate. At the end of the term of the loan you will still owe the same amount as borrowed.
Do we have the option of a Repayment Mortgage?
This is simply a mortgage whereby you pay all the interest and an amount of repayment so that at the end of the term you have no balance left to pay.
How long do I have to wait after completion before I can remortgage?
If you wish to refinance to pull out some of your equity you will normally have to wait at least 3 months after completion and in most cases 6 months.
How long will it take to receive the funds?
It will normally take between 4-8 weeks to get the entire mortgage process complete.
Do you order the valuations on the property?
In most cases smaller brokers will only prepare the deal for submission to a packer. In these cases they loose control of the deal. Larger brokers and packagers will order valuations themselves and thereby maintain control of the deal. This is important especially when you are attempting to get the maximum amount out of your mortgage.
How much do you receive?
Ask them as an upfront and from the lender. Once you find this amount out you won’t feel so sorry about them doing that extra bit of work for you.
How do I get a further advance?
Most brokers will tell you that you must wait 3 – 6 months before getting a further advance, this is often not the case. A mortgage review is always possible. Often times the broker may get paid better by putting you into a remortgage rather than having you call the lender directly.
How do I put large sums of money into the account?
This is important if you wish to pay off large amounts from say a sale or perhaps a remortgage.
What is the cost of a valuation on the property?
This will normally be between 0 and £500. In most circumstances you will not receive a copy of this unless you request it, even then you might not.
What other fees should I know about?
These will normally be added to the loan but it is important that you ask as they can be considerable. These fees will include Mortgage discharge fees, loan establishment fees, Chasps fees, transfer fees and a whole host of other ones.
The good thing is that prior to signing you will receive a mortgage illustration which will detail all of these fees payable.
Can I CHAPS out of the account?
This is a great question if you intend to build a portfolio. It will allow you to pay your exchange and completion monies on the day in most cases thereby holding onto your cash flow
What is the maximum LTV or Loan to Value?
This is quite simply the maximum amount a lender will allow you to borrow against your property. If your property is valued at £100,000 and the maximum LTV or Loan to Valve is 85% the maximum amount you can borrow is £85,000. 85% is the standard LTV of a buy to let investment.
Live with passion,
Brett Wood
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