One of the most important financial decisions you will ever make in your life is the choice of a mortgage. A mistake can be hugely expensive and could cost you thousands of pounds.
There are thousands of mortgages around and you should visit the web site “unbiased” to find a mortgage adviser to guide you through the minefield and recommend the best deal to suit you. Also double-check with the Financial Services Register (FSA) that the adviser you have chosen is authorised to give mortgage advice.
A good adviser will first clarify your needs, ascertain what you can actually afford and explain all the deals and repayment methods around before advising you which to go for. He also needs to adhere to all the FSA rules and regulations which are there to provide clear information to the public and to offer some protection in the case of someone being sold the wrong mortgage.
So lets consider the FSA's Rules - There are three important bits of information which the FSA requires a good adviser to make you aware of.
One is concerning levels of service and it is crucial that you and your adviser agree upfront which level you want. You can opt for an information-only service, whereby the adviser gives you all the facts but you take full responsibility for your decision. The other level is where the adviser gives you advice and a recommendation. If it turns out that he has not given you good advice and you end up with an unsuitable mortgage, with this level of service you will have some protection from the FSA.
The next key item is disclosure. At the outset the adviser should give you an Initial Disclosure Document (IDD) which states what type of adviser he is and the service you are receiving.
The third FSA rule is if an adviser is recommending a mortgage, then all the key facts must be set out in what's called a Key Facts Illustration (KFI). KFIs must be set out in a standard format to make it easy to compare the details of different deals on offer.
Affordability is a major issue - In this day and age it is absolutely vital that an adviser ensures you can afford the mortgage you want. A good adviser will check everything to do with your finances - how much you earn, what you spend on bills and living expenses, what your debts are. They will discuss any possible changes in your life that could affect your income and outgoings.
They need to be convinced that you can afford what you say you can on a mortgage, so asking vague questions about your budget will not be enough. A good adviser will demand in-depth information before he accepts that a certain amount is affordable.
Your mortgage terms - These days there is greater flexibility regarding the term of a mortgage and a good adviser will help you decide what term is best for you.
For example, if it looks as though you would struggle to meet the monthly repayments over a 25-year period, you could extend the term of the mortgage, thus paying less per month. However, if you kept the mortgage for the full extended term, you would end up paying more interest in the long run. Alternatively, you could make higher monthly payments if you could afford to over a shorter term, which could be cheaper in the end.
Which deal is best for you? - There are all sorts of mortgages out there - fixed rate, discounted rate, tracker mortgages. And then you need to choose between interest-only or repayment deals.
A good adviser will discuss the benefits or pitfalls, of all the different types of mortgages based on a thorough knowledge of your present financial situation and future outlook, and also how you feel about risk. Only then will he recommend the best repayment method for you.
If you have a limited budget and want to get on the property ladder with an affordable short-term deal but will probably improve your earnings later, then an interest-only mortgage might suit you. However, in the long term this type of mortgage can have more risk attached.
And the costs comparisons - A good mortgage adviser will compare all aspects of costs attached to a mortgage and not just the headline rate. Some lenders appear to offer the best rates, but there's an expensive upfront premium to consider. You need to know what is best for you regarding fees and interest rates, and a good adviser will help you sort it all out.
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