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Key Facts
Waddesdon Manor near Aylesbury, Buckinghamshire was built and furnished by Baron Ferdinand de Rothschild in the nineteenth century. In the twentieth, his descendants gave it to the National Trust.
Mortgage agreements tend to be long, wordy and complicated.
Few borrowers actually read the whole thing.
But everyone should at least know the key facts - the basic terms and conditions - of their particular loan.
PWP Tip Get a Key Facts sheet from your lender/adviser or make your own, and keep the list handy with your home survey and other important conveyancing papers.
Mixing and Matching
The arrangement fee can be £2,000 or more on one mortgage, zero on another, and somewhere in between on a third. Some mortgages come with a fee for legal work, others provide the "legals" free.
So, too, with ERCs, HLCs and other factors—some have apparently generous terms, and others seem stingy. Choosing the right mortgage involves calculating the various factors and determining which best fits your financial situation. Don't do the comparisons in your head. This is a job for pencil, notepad and calculator.
What the....
You arrive at the cinema, buy a ticket, watch the movie and, after it ends, leave.
Imagine being asked to also pay a fee to leave the cinema!
Imagine, further, that you have received no advance warning or notice that such a fee awaits you.
"Bloody hell" is right.
Many mortgage holders are in fact surprised by Early Redemption Charges (even though they probably were warned, in the small print they did not bother to read, that an exit penalty would apply).
They are caught by surprise because they don't realise that some transactions actually involve paying off the entire mortgage. For example, they remortgage to take advantage of a lower rate of interest.
But in remortgaging, they are actually paying off their original loan. And that loan will probably insist on a penalty payment if the repayment is done before a specified time.
Sometimes the early-redemption fee kicks in when the borrower gets a large bonus of inheritance and uses the cash to pay off the mortgage. Again, the ERC might kick in.
ERCs are spelled out in the original loan agreement.
When you compare various mortgage offers, make sure you know the early redemption penalties for each.
Number Crunching
The mortgage you take out today will be for a certain interest rate. You don't have much to worry about if you have to pay less in the future, but what if you have to pay more?
By using an electronic calculator, you can easily find out, and for any number of possible interest rates (you pose the question, the calculator does all the work).
How much more will you have to pay if interest rates rise by a quarter of a percent? A half? A full per cent or more (in the late 1980s, interest rates were more than 15%).
To easily find out, find a calculator (many websites have them), key in the amount of your mortgage, the term of the loan (for example, 15, or 20, or 25 years) and the anticipated new rate. Hit the calculate key and, presto, your answer appears.
Example: £100,000 repayment mortgage for 20 years: the monthly payments (capital repayment plus interest) will be:
6% = £716.43
6.25% = £730.93
You can do it for any amount over any time period. You can even do it for less than a quarter of a percent. Thus: at 6.05%, your payments will be £719.32.