New Mortgages Easily Explained

There has been a radical tightening of the money supply, plus there are so many different types of new mortgages - buy-to-let, interest only, fixed rate, etc. Therefore, first of all you need to decide the one which is applicable to your needs - this could involve help from an Independent Financal Adviser.

Importantly you will need to compare rates as these are governed by the Bank of England base rate.

Are you a first-time buyer?

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How is your credit rating? You will need to compare the rates of new mortgages and decide what type you require - Buy-to-let mortgage, interest only, fixed rate mortgage and not forgetting the Bank of England base rate.

You will then need to calculate how much money you have left after your out-goings have been calculated, only then will you know here you stand.

Set up two columns – either on a sheet of paper or computer Excel page. Write down all the money incoming per month in the first column, all the out-goings in the second column. This figure must include leisure, travel, etc. in fact all the money that you spend. When this is done -

Subtract the total spending from the total income and you will see how much you have left potentially at your disposal for one of the new mortgages. Look to see if you can possibly put a small amount of this ‘spare’ money away into a small ‘defence’ spending fund. Emergencies do happen!

When you see your mortgage broker/adviser you will have to hand the information you need.

Remember, if you go to a bank the 'independent' adviser there will be one who recommends the banks own - their new mortgages. As estate agent usually has an 'arrangement' with any financial adviser they recommend. Therefore, you can see why it is necessary to ask plenty of questions - or best of all, engage the services of an Independent Advsier.

For a list of unauthorised firms take a look at www.fsa.gov.uk/Pages/Doing/Regulated/Law/Alerts/index.shtml

Four main things affect your monthly repayments:

1. How much you borrow.

2. How long you borrow it for.

3. Which one of t he new mortgages you have (e.g. interest-only or repayment); and

4. The interest-rate deal you choose.

Budget for the future.

If you choose a variable rate (including a discounted or tracker rate), be prepared for your monthly payments to go up when interest rates rise. Although if you are lucky to have your rate fixed very low, at the moment this is an advantage.

If you choose a low, initial fixed rate or a discounted rate mortgage, allow for the increased cost when your interest-rate deal comes to an end. This has been a very unpleasant shock for some borrowers recently resulting in an increased number of calls to the CAB (see our Links Page) for help in coping with the situation.

You may be able to afford the repayments now, but think about what could happen if, for example, your income falls or you or your partner lose your jobs. What if interest rates rise and your monthly repayments go up? What if one of you falls ill for a period of time?

Sorry to be so pessimistic, but you have to work out how you can more or less make yourself bomb-proof.

If you are coming to the end of a fixed rate mortgage, you should start organizing your next deal as early as possible - as much as three months before the end if you can. Use a broker who is able to search the whole of the market, i.e., not tied to any building society etc. John Charcol (0800 718191) and London and Country London and Country Mortgages are at present the only nationwide brokers fitting this criteria. Please make your own check here to be completely satisfied.

Therefore, do not go for any of the new mortgages that are going to drain your finances dry. Think what your prospects are in your job. Are you contemplating starting or increasing the size of your family?

There is another route to getting a mortgage which you might be able to adapt to your own particular circumstances.

1. Go to the Bank of Mum and Dad.

2. If you are able to get a partial loan from M & D and can find a lodger for the spare bedroom this should ease your situation.

4. Stay a little longer at home with your parents, economise all you can and build up your bank balance for your deposit on whichever one of the new mortgages you settle for. Always assuming M & D will have you!

5. Renting is a definite no brainer. Nothing to show for all your payments.

If you do get into difficulties......

Get specialist debt help

We have put forward an 'easy-to-follow' page

Mortgage Debt and Advice which explains how to find help should you need it.

It's crucial to talk to your lender as soon as possible otherwise you could risk losing your home. You may be able to come to an agreement with them, such as a payment plan, and avoid more serious problems. Don’t delay and pretend it is not happening.

There is a FREE book - Debt Free the Easy Way - available to point you in the right direction. Just follow the instructions given on the above page.

It may be a good idea to get some free and independent advice before making any major decisions. Various agencies specialise in dealing with financial difficulties and can help you plan how to solve your problems. these are all listed on the page above.

Top tips

1. Research y our subject and make sure whichever one of the new mortgages you choose it is the right one for you.

2. Don't borrow the maximum on offer unless you’re sure you can afford it. Work out how much you can afford.

3. Plan your budget for now and the future.

4. If you're getting into difficulties speak to your lender or a specialist debt agency as soon as possible. Delay here could mean disaster.

5. Economise to help your budget stretch further and keep an eye on this site for all the money saving tips on offer.

6. Find out what your monthly repayments might be and to see the effect that a change in interest rates could have on them.

7. Try to make yourself bomb-proof.