Getting a mortgage is not easy nowadays. But you’ll make it a whole lot harder if you make one of these horrendous mistakes...
Not planning ahead
Every feature of your mortgage should depend on your own situation and future plans. This is why failing to plan ahead when looking for a mortgage can land you in big trouble.
Ask yourself where you’re likely to be in five and 10 years' time – will your housing needs have changed by then? How long do you see yourself staying in one place? Are you secure in your job? Big questions, I know – and definitely not ones you can give 100% positive answers to – but by at least trying to answer them realistically you’ll be giving yourself the best chance of getting the right deal.
It’s also important to work out your budget and get an idea into how much you can actually afford to shell out every month on a mortgage. The easiest way to do this is to use a budget calculator – such as this one from the FSA.
John Fitzsimons looks at three easy ways to reduce how much you are forking out on your mortgage each month
Likewise, if you’re an existing mortgage holder on a fixed-rate deal, you should start planning your next mortgage move around three to six months before your current fixed deal ends.
Again, ask yourself if your situation has changed – are you still comfortable in your property? Have you moved jobs?
Not shopping around
You won’t get the best deal on your mortgage if you don’t shop around and check out a variety of different options.
Of course you can use comparison tools such as our online mortgage centre and contact lenders individually, but I’d always recommend speaking to a broker – especially if you’re new to the mortgage game! As well as being able to find you a great deal, a broker can also advise you about how much you can and should borrow and will answer any general questions you may have about mortgages.
You can get fee-free advice from an FSA regulated lovemoney.com broker by calling 0800 804 8045 or e-mailing mortgages@lovemoney.com.
Getting too many credit scores
It goes without saying that you can’t properly shop around without getting a good number of mortgage quotes. But you should be careful when requesting these quotes, as they could have an impact on your credit record.
When you make any application for credit, be it a mortgage, loan or credit card, the lender will credit score you in an attempt to suss out how reliable you are when it comes to repaying debt. This check will make a footprint on your credit record and be visible to other lenders when they run a credit score on you. If you have too many checks on your record (usually more than two in 6 months) then lenders may start to get suspicious and think you’re desperate for credit.
But you don’t necessarily have to be credit scored in order to get a mortgage quote. Make sure you request a Key Facts Illustration from your broker. This will go over all the details of any prospective deal, including all the mortgage and broker fees – but won’t leave a mark on your credit report.
With this mortgage you can not only pay off your mortgage early, but you can also save thousands of pounds!
In fact, it’s worth checking with a broker whether they’ll be running a credit score on you before they create any type of quote.
You can check your credit report by using Experian’s free trial of Credit Expert (just make sure you cancel before the trial 30 days is up). To get some more tips on keeping your credit record in a healthy state read What REALLY damages your credit rating.
Fixing for too long
To fix or not to fix has been the question on the lips of every mortgage customer over the last few months. John Fitzsimons has been advising people to fix since January – but with fixed mortgage prices starting to rise and a base rate hike still not materialising, this decision is anything but clear cut. Again, it’s worth chatting to a broker to get a fuller feel of the market and where it’s going before finalising any deal.
Yet the real fixed mortgage pitfall you should be watching out for is not to do with interest rates at all – it’s to do with your own personal circumstances. You may be able to pick up a cracking rate on a 10- year fix, but if you’re not confident that you’ll want to stay in the property for a full decade, it’s pointless to lock yourself in for that length of time! Some lenders will allow you to port the mortgage to a new property, but not all!
It all comes back to planning ahead again – suss out your own situation before you suss out the mortgage market.
Not protecting your mortgage
A mortgage is the single largest amount of debt most of us will ever take on. But if the worst does happen, and you die before fully repaying it, that debt will be passed straight to your family. And if they can’t afford to keep up the repayments when you’ve gone, then the house will have to be sold.
If you’re buying your first home, here’s how to make the most of our innovative mortgage centre
But there is an easy way to protect your family from this - take out a life insurance policy that will pay off your mortgage if you do pass away.
Again, taking out mortgage protection does depend on your circumstances. If you’re a young homeowner with no dependants, then it may not be worth it and you should look at other options to protect yourself. But if you have dependents and are the main earner in your household, it’s essential.
There are a few different types of life insurance available, so it’s important that you’re fully clued up before taking out any policy. Read How to pick the right life insurance policy for some more information.
Failing to overpay
If you find yourself with a bit of extra cash one month then it may be tempting to splash out on a fancy holiday or pick up that iPad you’ve had your eye on – but there is a better home for your money.
On a basic level, overpaying on your mortgage will quite simply slash the time it takes you to repay your debt. But if you’re stuck in negative or low equity, overpaying on your mortgage is even more important as it will boost the percentage of the property you actually own. This increased equity will make remortgaging and moving to a larger property far easier.
Overpaying is especially relevant if you’ve recently come off a fixed rate deal and are enjoying a low SVR, as it gives you a chance to cut the amount of debt you’re paying interest on ahead of future rate rises. And anyway, if you’ve just come off a higher rate fixed deal you should have some spare cash lying around – so there’s no excuse!
It may also be worth looking at this sneaky mortgage trick if you’re currently on a SVR or tracker deal.