You and your partner are terribly excited to begin looking for your very first house. As young people, you have been told you will not be able afford to purchase until at least middle age. You think differently. After all, the mortgage application process at the broker your brother used looks simple enough and they say they can get you a great deal. But can they?
Buying a house is an exciting experience. It can also be a terrifying one. Why? Because buying a house is often the single biggest financial transaction of a person’s lifetime. You and your partner are about to spend hundreds of thousands of pounds on a home you can raise a family in. So yes, you are about to embark on the biggest expenditure of your lives.
Given how serious buying a house is, you don’t want to make any ill-informed decisions. Therefore, here are five questions you should ask your mortgage broker – whether or not he/she is the same person your brother used:
1. What kind of mortgage broker are you?
There are three kinds of mortgage brokers in the UK. A tied broker is limited to a single financial institution and the products it offers. Next is a multi-tied broker. This individual represents a small handful of institutions along with their products. Finally, the independent mortgage broker represents the entire market. He or she does not represent just one or two lenders. Why do you need to know the type or broker you are dealing with? Because an independent broker is going to give you the widest reach.
2. What products do you arrange most often?
In addition to knowing the kind of broker you are speaking to, it is also helpful to find out what kinds of mortgages a broker most often arranges. The broker with a heavy book of banks and building societies may not be taking advantage of certain kinds of broker-only mortgages. On the other hand, brokers that completely stay away from banks and building societies may not be offering the best range of products. Note that the law requires brokers to be up front about their full range of mortgages.
3. What is APR and how does it work?
One of the worst things you can do in the search of your first mortgage is to go into it without understanding all of those seemingly complicated vocabulary terms. One such term is ‘APR’. Any mortgage broker should be able to explain to you what this means. You will want to know the definition of the term and how APR actually works.
‘APR’ is an acronym that stands for annual percentage rate. It tells you how much interest you are paying on your loan per year. Let us use 12% for some easy maths. A 12% APR dictates that you will pay the equivalent of 12% of your outstanding balance in interest over the next 12 months. That amounts to 1% per month.
4. How long is my introductory period?
In the UK, it is fairly common for lenders to offer introductory periods on mortgages. The goal is to attract new customers with lower rates for the first 3 to 5 years. This is known as the introductory period. Once the introductory period comes to an end, higher interest rates kick in. As such, you should ask this question on any mortgage product you are offered. Be sure you clearly understand any introductory terms and conditions.
5. Can I truly afford this mortgage?
Mortgage brokers in the UK are also financial advisers. Not only do they advise you on specific mortgage products, but they also advise you as to whether or not certain products are a good fit for you. Take advantage of your broker’s specialised knowledge by asking if you can truly afford the mortgage you are hoping for. It’s better to know up front than to get yourself into a deal that will come back to haunt you later on.
Whether you use that same mortgage broker your brother used or not, know this: information is power. Do not be afraid to ask questions before selecting that mortgage broker you intend to work with. The more you know about brokers, the better off you will be.