Buying a House - The Costs Involved Part 2
At mortgagesplease, we take care to consider all aspects of your mortgage application and have experience of all issues that may affect it, from your personal circumstances to the charges levied during the purchasing process. There are some costs that are not obvious but may apply to your application:
MIG fighters - If you are putting down a relatively small deposit – perhaps 15% or less – the lender may expect you to insure your ability to keep up repayments. This Mortgage Indemnity Guarantee (MIG) or Mortgage Indemnity Premium (MIP) means you are paying an extra amount to give the lender the right to be reimbursed should you fail to keep up repayments, your home is repossessed and sells for less than the mortgage. It sounds crazy, but it is true!
However, these days, there are enough lenders who would not jeopardise losing you as a customer by asking for a MIG for you to ignore those who do, unless the rest of the package is remarkable advantageous.
Go now, pay now: The trend towards regularly examining your mortgage to ensure you are paying as little as possible in interest rates (and as much as possible in repayments) leads to healthy competition, greater awareness of the borrower as customer and more savvy mortgagees in general. To help prevent the flood of remortgages – done to get a better deal – many lenders (including Alliance & Leicester, Cheltenham & Gloucester and Royal Bank of Scotland have pumped up their exit fees. These apply if you close your mortgage before the end of its usual term (such as if you remortgage and move to another lender) and can weigh in as much as £300. Forewarned is certainly forearmed in this case and at mortgagesplease we help you with the small print that could catch you out later.
The exit fee - also known as a redemption fee, discharge fee, deeds fee or sealing fee - is basically an “administration charge” levied if you repay your mortgage early or move your mortgage from your existing lender. Normally these fees are stated as a percentage of your original mortgage amount, often reducing by a percentage point each year.
You have signed on the dotted line and the lender has your business. The special rate that attracted you in the first place continues for, say, two years, then the small print kicks in: you are locked in for a further three years on the lender’s own Standard Variable Rate. As most borrowers will stick with the mortgage through any special deal period, exit fees that apply during that time are not likely to be a problem. However, fees that apply after the honeymoon period could hit you hard when you want to remortgage.
Also, lenders who offer cashback for moving to them may reserve the right to claw some of this money back should you switch mortgages within a certain period of time.
Insurance tie-in: Lenders receive healthy commission from their chosen insurance company and you will invariably pay over the odds if you choose a mortgage from a lender who insists that you also take home and contents insurance through it. It is usually much cheaper to shop for insurance elsewhere. Some may insist on life assurance, too, which pays a lump sum in the event of your death. Again, it is most likely worth finding a different source than your mortgage lender’s recommendation (if not a different lender altogether) and would be an additional cost to factor into your purchasing calculations.
