Before entering a mortgage contract with a lender, remember it is generally a very long timeframe that you are potentially signing up for with that provider. It’s important to know just what you can and can’t do with a loan, and what the costs are, before signing up.
To help you, here are some questions to always ask before doing so:
- What fees do you charge?
For all loans, ask about application fees and other charges such as a low equity fee – this is where you can only provide a small deposit, like 5% or 10%. Bear in mind we recommend 20% as a minimum.
For fixed-interest loans, ask what fees apply if you increase repayments, make lump sum repayments, or repay the whole loan early – these are sometimes called ‘break fees’ and can be costly.
- What will be the total cost of this loan, including fees and interest, for the sum I am borrowing and the term I have chosen?
The lender will, naturally, make an assumption about future interest rates to do this calculation. But it will show how much you’ll pay back in total – be prepared for a shock! And remember, the lender is required to disclose the fees and interest separately.
Also, ask for the total regular payment in a year if the interest rate were to be 1% and 2% higher than now. That will give you some idea of the risk to your financial affairs if/when rates rise. This is particularly pertinent today as it’s generally believed inflation and interest rates must rise in the next few years as we recover from the pandemic.
- What changes can I make after the mortgage is set up?
For all loans, ask whether it’s possible to increase regular payments from time to time, pay in lump sums, and pay off the mortgage in full before the end of its term. For a Smart Money student this is very important!
- Is there is a required period of notice before reducing or paying off the loan with a one-off payment?
- Is there a charge to roll-over an expiring fixed rate?
Fixed-interest loans normally convert to a floating rate at the end of the term – ask about taking another fixed term instead at no charge.
- If I buy a new house, can I transfer the existing mortgage?
If the answer is yes, it’s likely to save money in fees.
- If I have a problem that I can’t sort out with you, where can I go for help?
Approach the lender with a complaint or problem in the first instance. If that doesn’t result in a satisfactory resolution, there are independent bodies available which can investigate and help settle disputes. Each region has their own processes in place, so check for your country’s dispute resolution scheme.
