Mortgage FAQs

	Must I clear my loan by a certain age?
	Can I get a mortgage offer before I find my property?
	What is " buy to let "?
	What is a flexible mortgage?
	Who is likely to benefit from a flexible mortgage?
	Why do the best discount deals vanish so quickly?
	Do County Court Judgments always disqualify me?
	Should I rule out mortgages with Early Repayment Charges?
	How are Early Repayment Charges calculated?
	How do I repay capital with an interest-only loan?
	Do I always need life insurance?
	How often do lenders adjust my interest bill?
	What is a Higher Lending Charge and will I have to pay it?
	What other costs might I incur in taking out a mortgage?
	What is the difference between a Standard Variable Rate (SVR) and a tracker rate?
	What is a CAT standard mortgage?
	What is APR?
	What is a Divorcee Mortgage?

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Must I clear my loan by a certain age?

A UK mortgage is usually designed to finish no later than the borrower's normal retirement age. That age is taken as 65 for employed people (male and female). Some lenders will consider a longer term providing the borrower has enough income after retirement.

Can I get a mortgage offer before I find my property?

Homebank Financial Services will help you find the mortgage that suits you before you have found a property, and then to get an "Agreement In Principle" from a lender. This can be helpful in getting the mortgage process underway, but the lender won’t make a formal mortgage offer until a valuation has been carried out on the property you wish to buy or remortgage.

What is "buy to let"?

Buy-to-let deals are specialist mortgages designed for people who want to purchase a property in order to rent it out to tenants.

Buy-to-let is becoming an increasingly popular investment method. Properties provide income for the investor from the tenant's rental payments and growth from any increase in the property's value.

What is a flexible mortgage?

Many people talk about “flexible” mortgages without being 100% sure what they are referring to – no wonder, it’s not immediately obvious what is meant. A truly flexible mortgage should have all of the following 5 characteristics:

• Interest is calculated at least monthly, preferably daily.
• Overpayments are allowed without incurring an Early Repayment Charge (either unlimited or up to a stated maximum percentage of the mortgage).
• You can take payment holidays.
• You can make underpayments.
• You can draw down any unused facility.

Even mortgages marketed as “fully flexible” often have different features.

For example, some flexible mortgages may allow a draw down of extra funds, a payment holiday or underpayments from day one of the mortgage. Others will only make funds available for these options from overpayments already made, or will require the mortgage to be satisfactorily conducted for a specified period, say 6 months, before some or all of these options become available. The most common requirement people have is simply the ability to make Early Repayment Charge free overpayments. If this is the only flexible feature you want, a Early Repayment Charge free mortgage will be just as suitable as a flexible mortgage and so you should consider both options.

• Self employed people with have erratic income or irregular (large) payments of varying amounts.
• Employed people who recieve bonus or commission payments over their basic salary.
• Self employed people who pay an extra monthly amount into their mortgage, then pay their 6 monthly. tax out of their mortgage (an advantageous method as the money put aside reduces the mortgage interest in the meantime).
• Working couples who currently have surplus cash, but are planning to start a family and want to be able to reduce payments at that time, when their income decreases.
• Those who can afford to overpay their mortgage now but intend in the future to take a “sabbatical” or unpaid leave for a significant period of time, e.g. to do a study course or travel round the world.
• Those who like the ability to overpay their mortgage when they can afford to, with the aim of paying off their mortgage more quickly.

Why do the best discount deals vanish so quickly?

When a lender offers Homebank Financial Services a special mortgage, it allocates only a certain total of money to be lent on that particular product. With market leading deals, this allocation may be “used” up very quickly.

In this instance, lenders generally raise further funds to cover the demand. By the time they have raised the funds, economic or competitive circumstances may have changed to the extent that it is no longer possible or valuable to them to offer the original product. They may release a new special offer or product (which would then appear “different” on our site). Or they may choose to use these funds elsewhere, in which case you won’t see the product again.

In some cases they may withdraw the product in between the time that you apply online and your application is finally submitted, e.g. overnight. In these instances we will endeavor to match you to a similar product which is just as suitable.

Do County Court Judgments always disqualify me?

If a County Court rules against you for defaulting on a debt, that ruling is listed on your credit record. Having such a judgment listed against you may mean it is difficult to obtain a mortgage through most lenders. However there are an increasing number of specialist lenders who will lend to people with a CCJ or other credit problems. Homebank Financial Services online carries a number of products which cater for those whose lending circumstances are unusual or difficult.

Alternatively, if you don’t find products that suit you, you can contact Homebank Financial Services, and their team of professional financial advisers, who will scour our panel to find products that are suitable for your circumstances. Homebank have years of experience in finding mortgages for everyone – and particular strength in finding products or deals for those who haven’t been able to find a mortgage anywhere else.

Should I rule out mortgages with Early Repayment Charges?

Most cashback, fixed and capped rate mortgages, and also many discount mortgages, have Early Repayment Charges. With fixed, capped and discount mortgages these Early Repayment Charges will usually last at least as long as the special rate but quite often they also apply after the special rate has finished. Mortgages with Early Repayment Charges extending beyond the special period are said to have a “tie in“ beyond the special rate”. On cashback mortgages, Early Repayment Charges will typically last for 5 or 6 years.

As a general rule, the cheapest initial interest rates will be available on mortgages with a “tie in“. This is because a lender can subsidise the rate if it is tying you in to paying a higher variable rate after the initial special rate. Likewise, mortgages with Early Repayment Charges during the special rate period will normally have a lower rate than a mortgage with no Charges.

However, because the mortgage market is so competitive there can often be exceptions to this rule, in particular with discount mortgages and on shorter term deals of 2 to 3 years.
Our experienced Advisors will be able to help you assess the different options by showing you the total costs for each product over time (including any charges for early repayment).

For most people it is best to avoid a mortgage with a “tie in". This allows you to keep your options open at the end of the special rate period to look for another deal without incurring what may be a very expensive charge – it can be as much as 5% of the mortgage loan or higher.

How are Early Repayment Charges calculated?

Early Repayment Charges can be calculated in several different ways. The charge will be based on the amount of the mortgage redeemed and will usually either be a percentage of the amount redeemed or a number of months interest.

If the latter approach is adopted by the lender, the rate of interest used in the calculation may be based on the lender's Standard Variable Rate (SVR) or the actual fixed/capped/discount rate being paid, or the higher of the two.

Sometimes the charge remains the same during the whole period of the special rate; for other mortgages it decreases over the special rate period.

However, there are some mortgages, usually discount mortgages, where the charge actually increases during the special rate period.

It is worth bearing in mind that most lenders will allow you to move your mortgage with you to a new home without incurring an Early Repayment Charges (commonly known as a portable facility).
Some lenders will allow you to make some charge free repayments (beyond your normal monthly figure).

These will typically be limited to around 10% per year of the outstanding mortgage or, say, 25% of the total mortgage. This part repayment flexibility is particularly useful on a fixed or capped rate mortgage, as it leaves most people with sufficient flexibility to repay some of the loan if interest rates are low, and they have some spare cash.

Details of the flexibility each lender offers around such part repayments are laid out in the Mortgage Details section for each mortgage on our site.

How do I repay capital with an interest-only loan?

If you have an interest-only mortgage, your monthly payments will pay off the interest on your loan, but not the money you borrowed in the first place. You can pay off the original money you borrowed in any way you choose, but you often have to inform the lender at the start how you intend to do so. People often save in a separate plan. The proceeds from this plan go to pay off your capital when the mortgage term is complete.
The main options for saving in this way are by using an Individual Savings Account (ISA), an endowment policy or a pension.

If you need advice on capital repayment methods, we can put you in touch with an Independent Financial Adviser (IFA) who will discuss your circumstances with you and recommend an alternative savings method.

Do I always need life insurance?

If you were to die, your family may be unable to keep up with the payments on the mortgage.
Because of this a few lenders may insist you buy life cover (also referred to as “term assurance” or “life insurance”) when you take out your mortgage. You may also want to consider taking out critical illness cover, which could pay off your mortgage if you suffer an illness which would affect your earning power, such as a stroke or cancer. As part of its comprehensive service Homebank Financial Services can offer many types of life insurance to suit most requirements. Please contact us for details.

How often do lenders adjust my interest bill?

Historically, most lenders have calculated interest annually. This means that the interest you pay during a year is based on the amount of the loan that was outstanding at the beginning of that year. However, most lenders will make an adjustment if you repay a lump sum during the year (subject to a minimum payment of £250 - £1,000; this minimum does vary by lender).

Using an annual interest calculation is a potential issue for repayment mortgages because you don’t receive the benefit of lower interest costs for the repayments of the capital you make during the year. In practice, for the early years of a standard term repayment mortgage (25 years), it doesn’t make much difference because you are repaying very little of the capital, in the early years.

Conversely, for shorter term repayment mortgages (e.g., 10 years), and towards the end of longer term repayment mortgages, there can be significant disadvantage to you from the annual calculations. This is because the proportion of the monthly payments which represent repayment of capital increase as the mortgage term gets shorter.
For interest only mortgages - which include endowment, ISA and pension linked mortgages - it generally makes little or no difference whether interest is calculated daily, monthly or annually.

Many of the newer lenders, and increasingly the traditional lenders, calculate interest daily or monthly. To make matters more complicated some lenders charge annual interest on some mortgages and daily or monthly interest on others. The difference between monthly and daily calculations is usually small and is likely to be much less important than other differences between mortgages.

However, you need to bear in mind that some of the best interest rates are available from lenders that only offer annual interest calculations (often because they have been unable as yet to change their computer systems to allow daily or monthly calculations). The differences in the interest rate and other aspects of the deal will often outweigh differences between interest rate calculations.

What is a Higher Lending Charge (HLC) and will I have to pay it?

Although this is the term most commonly used, different lenders use different names to describe it. It is a one-off premium paid by the lender to an insurance company on high Loan To Value (LTV) mortgages so that in the event of the property being repossessed and sold at a loss, they can recoup any losses they incur from the insurance company.

This premium is sometimes passed on to the borrower, either by adding it to the mortgage or by requiring the borrower to pay it on completion or over a specified period: usually 12 months or by the end of the lender’s financial year.

The majority of lenders only charge HLC to borrowers where the mortgage is over 90% of the value of the property (LTV of 90%). However, there are a lot of variations on this, with some lenders not charging it at all, even on 100% loans, and others charging it on over 70% of the value of the property. Also, some lenders who would normally charge HLC have special mortgage deals on which they do not charge it.

When HLC is charged, most lenders charge it by reference to both the actual LTV and the amount they are lending in excess of 75% of the property value. For example, a lender may make no HLC charge on a 90% loan but if you borrow 90.1% HLC will be charged on 15.1% of the property value (90.1% minus 75% = 15.1%). Thus a small additional amount of borrowing over 90% can become very expensive.

Whilst it is sometimes worth paying HLC because the rest of the deal is so good, in general you will get better value from mortgages that do not charge HLC. As an example a 100% mortgage from a lender who charges HLC will typically include a HLC cost of 3% of the mortgage amount, i.e. £3,000 on a £100,000 mortgage! Similarly, the typical charge for HLC on a 95% mortgage is about 1.5% of the loan value.

Furthermore, some of the most competitive interest rates on 100% mortgages are usually from lenders who do not charge HLC.

Illustrations on our site will always show you if HLC is charged and if so how much it will be.

However, if the surveyor values your property at less than the asking price, watch out for one potential trap. The lender bases its calculations on whether HLC is payable on the lower of the purchase price and the mortgage valuation.

If the valuation comes out at less than the purchase price (or your estimate of value if it is a remortgage), a small reduction in value (as determined by the surveyor) may mean that your mortgage is pushed over the threshold at which HLC is charged. In these circumstances you should try to renegotiate the purchase price down to the valuation.

If you can’t do this, but still want to proceed with the purchase, another route to consider is to reduce your borrowing to keep it below the HLC threshold (if you can afford to increase the deposit).

Alternatively you may want to search our site for another mortgage that will allow you to avoid HLC. In most cases, valuations can be used for a different lender, very often without any additional fee being payable.

What other costs might I incur in taking out a mortgage?

The costs related to taking out a mortgage will be clearly shown when you apply for your mortgage. These costs exclude legal costs, but we can provide an estimate of legal costs for you (which tend to vary in line with the cost of the purchase). Generally, the other costs you will, or may, have to pay are:

What is the difference between a Standard Variable Rate (SVR) and a tracker rate?

Each lender decides what SVR they will charge. Although this is set taking account of interest rates generally and based on how competitive they want their SVR to be with other lenders, it is not specifically related to any other interest rate. And, although lenders normally change their SVR as a result of Bank Base Rate changes they don’t always change them by the same amount.

When Bank Base Rates dropped from 0.5% from 5.5% to 5.0% in 1999 most lenders only reduced their SVR by 0.1%. Mainly as a result of this tracker rates have become more popular and many lenders now offer at least one tracker mortgage. A tracker mortgage is simply a mortgage that tracks an independently set interest rate, usually Bank Base Rate but sometimes the LIBOR rate. (LIBOR stands for London Interbank Offered Rate and it is the rate at which banks lend to each other.)

The benefit of having a tracker mortgage is that you are guaranteed that any falls in interest rates will be passed on to you. Tracker mortgages have the theoretical disadvantage that when interest rates are rising these rises are also guaranteed to be passed on to you. However, as lenders have generally been increasing their SVRs in line with Bank Base Rates the reality is that both SVR and tracker mortgages have increased by the same amount – so a tracker mortgage with exactly the same terms and conditions as an SVR mortgage is likely to be a better bet.

Most Base rate tracker mortgages reflect any change in Base Rate from the beginning of the month after the Base Rate has changed.

What is a CAT standard mortgage?

CAT stands for Charges, Access and Terms. In April 2000, the Government announced minimum standards for a mortgage to meet in order to qualify as a CAT mortgage. Although most of the specific requirements for a CAT standard mortgage are desirable in isolation they will not all be important for most people. Because a CAT mortgage has to meet every single specified condition, most CAT mortgages may often be uncompetitive compared with other similar mortgages from the same or different lenders. Furthermore, many lenders are currently unable to offer CAT mortgages because one requirement is that interest must be calculated daily and their computer systems can not cope with daily interest calculations.

Some of the main requirements a CAT mortgage has to meet are:

What is APR?

APR stands for Annualised Percentage Rate. A lender is always required to quote the APR when advertising a loan or borrowing rate.

The lender will usually quote the headline rate and the APR next to it. The headline rate states the rate of interest you pay per month or per year on the mortgage, while the APR calculates the total amount of interest that will be paid over the entire period of the loan. It should also take into account any charges which the borrower has to pay during the loan period.

The Office of Fair Trading has the following to say about APR:
“Simply knowing the amount of the credit charges is not usually enough for a borrower to compare one credit deal with another. The time at which the credit and charges have to be repaid affects the rate of the charges being made and how valuable or costly the deal is to the borrower. Lenders use a number of different ways of charging interest and these can treat the time of payment in different ways. So, in addition to leaving out other charges, lenders’ interest rates will not generally provide a useful comparison.” Instead, the Total Charge for Credit Regulations set down how to calculate an annual percentage rate of charge (APR), which expresses the Total Charge for Credit as a standard measure borrowers can use to compare the credit charges under one deal with another, whatever rate or method of charging is used.

The OFT adds:
“It is important to understand that APR is not the only thing the borrower needs to consider when choosing credit. For example, the deal with a lower APR might require monthly payments the borrower cannot afford, or run for much longer than the borrower wants or than the goods bought with the credit are likely to last, or the goods might be cheaper from another store, making that a better deal even though the credit charges are higher.

However, APR is the only standard measure which allows the borrower to compare the charges being made for the credit provided.”

What is a Divorcee Mortgage?

A Divorcee Mortgage is a new, innovative and exclusive product from Homebank Financial Services designed to cater for the needs of divorcees who depend on their former spouse for income.

For all UK mortgage enquiries please call us on freephone 0800 052 3604 or Click Here to contact us.