Self Build Mortgage
Self-build mortgages differ from ordinary mortgages provided for existing residential properties. With existing properties there is a value on which to lend, and this value dictates how much can or will be lent. The lender knows the value of the security and what the risk might be.
In the case of self-build mortgages, the value of the house increases as the project goes along. The lender is concerned with value and so gives the loan in stages as the value increases. This is a frustrating procedure as surveyors must visit the site, certify a value for the works carried out and then give this written valuation to the lenders, before further self build mortgage funds can be advanced. The self build mortgage payment in stages takes time and causes difficulties of cash flow and has caused many a self build project to be scrapped.
Obviously everyone will have different opinions over what are the best mortgage tips. What is certain is that the ten tips below give you some food for thought and questions to ask to help you find the best mortgage for you out of the thousands on the market.
Firstly, find out what types of mortgages are available to you. Get your broker or the consultant at the lender to explain the different types of home loans. Ask about fixed rates, discounted rates, capped rates, flexible mortgages as well as trackers, current account mortgages and cash backs. Ask about any deals they have for first-time buyers. One of these will best suit your needs.
Then, get quotes to find out how much your monthly payments would be. In the worst case base rate scenarios, you may end up paying 10% interest on the mortgage. Find out if payments at 10% would be completely beyond your means. If they are you are over-stretching.
Ask about redemption penalties. These could tie you to the lender's standard variable rate after the discount, fixed or capped period ends. This may make the deal less valuable to you.
You should also ask what actually does happen when the discounted, fixed or capped period ends. Will you be written to by your lender to be offered new products or will you be put on the standard variable rate until you notice?
You should find out about incentives such as paying your valuation or legal fees that the lender may be using as a marketing tool.
You should ask about the 'arrangement fee'. This is charged to set up the self build mortgage, and can outweigh the benefits of any deal you are getting. There could be a 'booking' fee to secure the funds for a fixed rate mortgage.
Ask if you are forced to take out buildings and content insurance as part of the deal with the lender. They may not offer the cheapest rates or the best products so you should shop around.
You should also ask about the Mortgage Indemnity Guarantee (the MIG). This is sometimes charged on self build mortgage representing 75% or more of the value of the property. It is insurance for the lender on you defaulting on your loan and offers you no cover at all. The cost can be in the thousands, so watch out for it.
Find out if interest is applied annually, where monthly payments are taken off your debt at the end of the year, or daily, where you pay interest only on what you owe.
Finally, how flexible is the self build mortgage? Can you overpay, underpay, or take payment holidays without being penalised for it.
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