The Difference between Life Insurance and Mortgage Life Insurance

For anyone who is buying or has bought their own home, this question has probably crossed their minds at least once or twice. Mortgage life insurance and straightforward life insurance are two very similar products, but are designed to do two different jobs. Here’s what you need to know.

What Is Life Insurance?

Life insurance is a policy which you take out, usually voluntarily, in order to provide for your family if you unexpectedly pass away. There are many kinds of life insurance, some which last for a fixed period of your life, others which stay with you for the whole of your life. The settlement figure can be anything from a few thousand pounds, designed to cover the cost of your funeral, up to many hundreds of thousands; enough to pay off all your debts and leave a good nest egg for your family too.

What Is Mortgage Life Insurance?

Essentially mortgage life insurance does the same job; it pays out some money if you die unexpectedly. However, this type of policy is designed to only cover the outstanding mortgage debt, and will not pay for any other debts, any funeral costs or leave any cash for your dependants. This is also referred to as ‘decreasing term life insurance’ because the amount it pays out decreases over the years, in line with the reduction in your outstanding mortgage.

Things To Think About

Sometimes your mortgage lender will require that you take out mortgage life insurance when you agree to borrow the money. Other times, you may be looking to take out some form of protection so that your family are taken care of if you are not around.

Whatever your reason for investigating life insurance, there are a few things you’ll need to think about before you decide:

• Decreasing term or fixed term? Mortgage life insurance is typically a decreasing term policy, which reduces in line with your mortgage. This is the cheapest type of life insurance policy, but for a slightly larger investment, you could be covered under a fixed term policy. This policy would run for the same term as your mortgage, say 20 or 25 years, but would pay out the same amount all through the term. This means that as you pay off more of the mortgage yourself, you could be leaving a nice little nest egg for your loved ones.

• Lenders policy or a third party? Your lender may try to sell you their own mortgage life insurance, but are they offering you a good deal? You are not obliged to take their deal, and it’s a good idea to shop around to see what other companies can offer.

• Single or joint? A common problem with mortgage life insurance is that they can end up being joint. Usually, a joint life insurance policy is not worth having, and most good brokers will recommend you take out separate policies instead. Even if you have a joint mortgage, you aren’t required to have a joint insurance policy, so look to take out two separate agreements instead.

• Changing interest rates: When you set up your mortgage, your lender will help you arrange a decreasing term policy which will reduce in line with your mortgage balance. However, changes in the Bank of England base rate could dramatically change the outstanding balance on your mortgage over the term of the agreement. For this reason, it’s important to reassess your mortgage life insurance from time to time to make sure it’s still enough to cover what you owe on your house.

Mortgage life insurance is a great solution for those on a tight budget who don’t have any dependants to think about. It’s cheap, it covers what you need it to, and it will make your lender happy.

However, if you have children or other dependants, or if you want to pay off other debts in the event of your unexpected death, you should consider other types of life insurance too.

If your mortgage life or life insurance policies are up for renewal soon, and you would like some help investigating a better deal for you and your family, please do not hesitate to contact me. Call 01252 759233 or email  info@thesurreymortgagebroker.co.uk

Can I get a Mortgage when I'm Retired?

The number of people who still have outstanding mortgage debt when they hit retirement is on the rise. In fact, according to the Office for National Statistics (ONS), there are currently around 350,000 over 65’s who still owe money on their house. With around 40,000 of these mortgage deals coming to an end each year, retirees have no choice but to renegotiate a new deal on their borrowing.

Getting a mortgage is certainly possible in retirement, but it can be more difficult. Whether you want to move house or remortgage your existing home, it’s important you understand the challenges you face so you can adequately prepare for your financial future.

The Challenges Facing Retired Borrowers

There are several key challenges facing older borrowers if they are looking to remortgage or change mortgage providers in their retirement. Some of these are:

• Mortgage repayment periods are getting shorter

Big banks and lenders are getting tougher about when mortgages are expected to be repaid. For instance, Skipton recently cut their maximum repayment age from 80 to 75, and West Bromwich Building Society reduced theirs from 80 to 70. Many of the big players such as Halifax, Lloyds and Santander have a maximum age of 75, or 65 for interest only loans.

• Lower income may restrict the offers available

Once you are retired, your income will inevitably drop. Depending on how much this leaves you with, as well as how much you owe on your house, you could find your options more limited than they would have been if you had secured a deal while you were still working.

• Higher risk may increase the interest rate

Because it is viewed as riskier for a lender to take on an older borrower, you could end up paying a lot more for your mortgage than a younger person would. Interest rates may be higher and repayment terms shorter, so affordability can be a big challenge.

If you are still working at the moment but feel that the amount you are paying right now on your mortgage may not mean you’ve paid it off by the time you retire, speak to your lender sooner rather than later. While you’re still employed, you have many more options and better value for money deals available to you than you will when you eventually stop work.

How To Find A Good Mortgage Deal

If you are facing the reality of getting a mortgage either in retirement or one that won’t be paid off until after you retire, finding a great deal in good time should be top of your list of priorities. You can start by looking at online price comparison sites, however bear in mind that not all mortgage products will be represented on these. Try to use at least two or three different sites to get a good overview of the market.

Once you have an idea of what you could be paying and who is likely to take you on, consult a mortgage broker to uncover any other deals on the table. Some specialist deals for older borrowers are only available through brokers, so it’s well worth taking the time to go through things with these an independent advisor.

Make sure you pick a mortgage that is right for your circumstances, and one that you can afford the repayments on. Equity release may look appealing, as it could help you fund your retirement and pay off your mortgage sooner, but make sure you understand fully what this scheme involves before signing up to anything.

If you are struggling to find a mortgage, give me a call and we can explore your circumstances in more detail. Call 01252 759 233 or email info@thesurreymortgagebroker.co.uk

If you shop around for Car Insurance, why not do the same for Home and Contents?

In the current economic climate, we’re all looking to save money where we can. Around 77 per cent of us shop around for our car insurance so that we can get a better deal, and huge numbers of us also shop around for energy deals, loans and even for cheaper groceries.

Despite the widespread support for the ‘compare and switch’ approach, it seems that home and contents insurance has somewhat fallen through the cracks. An incredible 78 per cent of customers admit to accepting their renewal price without checking if it’s a good deal, which could be costing us dearly.

Home and Contents Insurance: Why Shop Around?

The most compelling reason to shop around is that if you don’t you could be paying more than you need to. Insurance companies will often offer new customers exclusive deals and discounts to get them on board, but then are at liberty to hike the renewal price, often without the customer realising it’s happening.

Energy providers have hit the headlines recently because they frequently stick automatically renewing customers on their most expensive ‘standard’ tariff. Chances are your insurance provider is going to do the same. Recent research by VoucherCodesPro found that on average, auto renewing home insurance customers were paying a whopping £339 a year more than the cheapest deal available to them.

Jot the date of your renewal in your diary, and make sure you’re aware of any notice period you must give. Get quotes in from comparison sites and then ask your provider to see if they can match or beat the best quote you found. Never allow your policy to auto renew; loyalty does not pay!

It’s Easy To Compare Quotes For Home And Contents Insurance

If you are keen to know whether you’re getting a good deal or not, you’ll be pleased to know it’s actually really straightforward to compare insurance costs. There are three main routes to getting comparative quotes:

1. Use comparison sites: Just as you do for your car insurance, there are many price comparison sites out there ready to help you source numerous quotes. Always go to at least two comparison sites to ensure you’re getting a good spread of offers, and bear in mind some providers will not be available through these sites at all.

2. Go direct: For the companies who do not quote via price comparison websites, you could go direct for a quote. Notable for their absence from price comparison services are Aviva and Direct Line, two of the UK’s largest insurers, so keep in mind you might want to go to them directly.

3. Use a broker: Sometimes brokers can obtain better deals on insurance than any consumer is able, particularly if you have an unusual house. If you live in a listed building, in a flood prone area or a house of nonstandard construction, it’s worth getting a broker to do the shopping around for you.

You may be offered insurance as part of your mortgage deal, or even from your bank, credit card company or supermarket. Whoever it might be offering to insure you, take the time to make sure you’re getting a good deal before jumping in to any agreement.

Top Tips For Getting A Better Deal

Whether you’re in the market for a new policy or are approaching your renewal date, there are some things you can do to help your home and contents insurance provider give you a better deal.

To get the lowest price possible, try to:

• Pay annually: Paying monthly is almost always more expensive than paying in one go.

• Buy contents and buildings together: If you need both, buying them together will offer significant savings over treating them separately.

• Increase your excess: Opting to pay a higher amount of voluntary excess lets your provider offer you a lower rate on the policy.

• Get the right cover: Try not to overestimate the value of your contents, otherwise you could be paying for cover you don’t need. Check what’s already covered by other policies, such as your packaged bank account or travel insurance.

• Stop smoking: Smokers tend to pay more for their home insurance because of the increased risk of fire.

• Fit smoke alarms: Good smoke alarms on every floor of your property will not just help to lower your insurance premium; they could save your life too.

• Improve security: Upgrading locks on external doors, putting locks on windows and installing security lighting can be effective ways to both make your home less vulnerable and your premiums lower.

While you are shopping around for a cheap home insurance quote, make sure you are comparing prices fairly by discovering all the hidden costs. Administration charges are one of the biggest hidden expenses on home insurance quotes, so be confident you’ve got all the facts from your provider before making any decisions.

If your home insurance is up for renewal and you want a better deal, contact me to see whether I can help. Call 01252 759 233 or email info@thesurreymortgagebroker.co.uk

How to pay off an Interest only Mortgage before you Retire

In the past, getting an interest only mortgage was actually a very intelligent way to afford the repayments on your dream home. The notion was that, as long as you linked a savings plan or investment vehicle to the mortgage, it would be no problem to pay off the outstanding amount at the end of the mortgage term.

Sadly, things have not always worked out that way. Many people who were sold interest only mortgages in the 1980’s and 90’s are now rapidly approaching the end of their mortgage term without any savings in place or a plan for how they will pay off the lump sum.

Research by Citizen’s Advice suggests that in the region of 934,000 homeowners in the UK who are currently on an interest only mortgage have no plan in place for the final repayment. They estimate that the average shortfall for these people is £71,000, meaning many people could be facing repossession when their interest only deal comes to an end.

Financial Changes Have Brought New Challenges

It is estimated that there are currently 3.3 million people in the UK who are in an interest only mortgage situation. An investigation by the Financial Conduct Authority showed that around 600,000 of these mortgages would be maturing by 2020, with many more maturing in stages over the coming decade. While the owners of such mortgages were aware that this was the situation, certain changes to lending rules and economic shifts in general, have caused them problems with repayment. For example:

• Recession: Interest rates have dropped drastically. Those paying into a savings or investment plan may be getting back significantly less than they had planned, causing a major shortfall in funds.

• No extension of mortgage: Lenders rules and criteria have changed drastically since the crash of 2008, and now it is very hard to get an interest only mortgage. The chances of extending a mortgage agreement on these terms is slim.

• No remortgage: Borrowers may have planned to switch to a repayment mortgage when the interest only period expired, but this might not be as simple as they thought. With tighter lending criteria and many of these homeowners over the age of 50, they are more likely to be turned down for a mortgage.

• Not easy to downsize: Some homeowners may have planned to sell up and use any equity in the property to buy a smaller place. However, this can be tricky, as house prices may not have grown in the way the owners had forecast, and they may have little or no equity remaining.

While the economic situation over the past few years has certainly made it awkward for some of the older interest only mortgages, it’s not all bad news. There are ways to ensure you have a smoother ride come the end of the agreed period, but it’s important to make those changes now rather than wait until things get financially strained.

How You Can Pay Off Your Mortgage Faster

If you’re on an interest only mortgage, there are a few things you should do right now, or at least start making plans for, to ensure you aren’t caught out at the end of your mortgage term.

• Switch part of your mortgage to repayment: While still paying towards the interest only deal on one part of your mortgage, switch a chunk over to repayment to start reducing your debt. You’ll still need to figure out where to get the lump sum from at the end of the interest only term, but you should be able to whittle things down a bit in the meantime.

• Pay more into savings: If you’ve got spare income, increase the amount you are saving each month by as much as you’re comfortable with. Be aware that the value of investments can fall as well as rise, so take good financial advice on this from a professional.

• Reduce the mortgage early: If you have savings already, talk to your lender about paying off a slice of your mortgage right now, which might enable you to afford a repayment mortgage sooner rather than later.

• Switch to a full repayment mortgage: If you can afford to, switching to a full repayment mortgage now while you are still credit worthy is a great way to stave off the risk of losing your home later on. The longer you leave things, the closer to retirement you get, and the riskier the prospect of lending to you will be.

• Plan to use your pension: If you have a good company or private pension that you’ve been paying into for some time, find out if you’re expecting a lump sum payment and how much this will actually be. Sometimes this can be as much as 25% of your pension, which could easily be enough to pay off your mortgage. However, do make sure it’s not going to leave you ‘house rich and cash poor’ in your retired years.

Whatever your plan, make sure you do have one. There is no obligation for your lender to do anything to help you at the end of the interest only term, and they are quite within their rights to demand you either pay up, sell up or get out. Put a plan in place now, and avoid risking your home and your future later down the line.

If you would like to discuss your options or have applied for a repayment mortgage and been turned down, please contact me. There are ways to pay off your interest only mortgage without losing your house and I would be happy to talk through these with you. Call me on 01252 759 233 or email richard@thesurreymortgagebroker.co.uk

6 Reasons a Mortgage Application is Declined and What to do

So you’re buying a house. You’ve found your dream property. It’s in the right location, it’s the right type of house and it’s within your budget… happy days. But.

Despite your bank being very confident you would be approved for a mortgage, you’ve been declined. Despite keeping your credit record squeaky clean for years and years, some pen pusher has said ‘no’. Despite working hard to save for a deposit and spending months looking for the right property, your dream home is slipping out of your hands.

Sometimes life doesn’t seem fair, but you don’t have to take this lying down. Here’s a list of some of the most common reasons a mortgage is turned down, and what you can do about it:

1. There’s a problem with your credit file

If you have a poor credit history, it’s a good idea to improve your credit rating before you even start to apply for mortgages. However, sometimes you can have a perfect credit record, but a simple mistake on your file could make you look like a risky borrower. Contact the credit reference agencies (Equifax, CallCredit and Experian) and get a copy of your file to make sure everything is as you expected.

2. You’re not on the electoral roll

Lenders like to confirm that you are who you say you are, and that you live where you say you live. For this, most will check your application details against the electoral roll. This is an easy one to overlook, and if you find you are not on the register, it’s an easy one to resolve too. Simply contact your local council to be added or do it yourself at www.aboutmyvote.co.uk

3. You have debt, unsecured loans or payday loans

Borrowing is not seen as a bad thing per se. But borrowing over your means is. If you’ve taken loans, overdrafts or other credit, make sure you’ve paid back as much as you can before searching for a mortgage. Payday loans are the worst, as these are seen as emergency credit that is taken out by people who can’t cope. Any payday loan since 2011 will show up on your file, even if you paid it off on time, so avoid taking these at all costs.

4. Your deposit is too small

You can get a mortgage with as little as 5% deposit but many lenders are currently asking for more. This is especially true if you don’t score highly in other areas of a lender’s criteria, they may still be prepared to lend but will want a larger deposit. Try to boost your savings as much as possible before entering into the application process. The larger your deposit, the greater your chance of being accepted and the more preferential the rate you’re offered will be.

5. You’re retiring during the mortgage term

New mortgage affordability criteria which came in during 2014 have seen many more people being turned down for mortgages despite having good salaries and clean credit records. If you or your partner are due to retire during the mortgage term, your lender may look unfavourably on your application. With housing so expensive, some borrowers are seeking out 30 year mortgages, which could see you being turned down as young as 40 years old. If this is the case, see if you can increase your monthly payment budget and reduce the mortgage term so you are not retiring during the loan period.

6. Application errors

Nobody is perfect, not even your lender, and mistakes can sometimes happen that were simply a human error. At some point, the information from your application form was entered into a computer database, and a simple typo in this situation could see you turned down. If the refusal is really unexpected, schedule an interview with the lender to discuss your application.

7. You just don’t fit their criteria

Some lenders have a specific demographic that they like to lend to, and if you don’t fit the bill, then you could be turned down. If you think this has happened, try approaching an independent mortgage advisor for help, as they will have a better idea of which lenders are likely to accept your application.

Whatever the reason you’ve been turned down, don’t let it dishearten you. There are things you can do to make your application more attractive to another lender. Get in touch if you’re in this situation and want some impartial advice. I’m always happy to chat through your options so call me on 01252 759 233 or email richard@thesurreymortgagebroker.co.uk