Midweek Money: It pays to ask questions

A mortgage could be your biggest financial commitment. Andrew Couchman shows how to get the best deal
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The Independent Culture
Buying a home, one of our largest financial commitments, is, for most, made possible only by borrowing money in the form of a mortgage. If you have a mortgage, here are 10 questions to ask your mortgage lender.

Can I get a better deal? Many lenders offer their best deals only to their new customers. New borrowers enjoy discounts, cash back and other promotional deals but, as an existing borrower, you may get none of these. Most lenders will not tell you whether you could advantageously move to a better loan with them, so you will have to ask. Alternatively, you could switch to another lender. Switching can cost a lot in terms of legal fees, valuation and any early repayment fees charged by your existing lender (especially if your current scheme is at a fixed rate or enjoys a discount) so make sure you understand all the costs involved before considering such a move.

What benefits do I get from being a customer? Many lenders financial services companies, have been slow to recognise the value of existing customers. Embarrass them by asking for a better deal. If they are as customer-focused as they claim, such programmes will become more popular.

Can I borrow more in the future? You may not want a bigger mortgage now, but in the future money for a home extension, or school fees, can often be cheaper by adding to your mortgage rather than through a separate loan. Some lenders even build in automatic further advance options to their mortgages, but remember that your home is at risk if you cannot afford the repayments.

Can I get cheaper household insurance? Many people automatically insure their home and contents through their mortgage lender's package deal, but you may be able to get cheaper cover elsewhere. Shop around to find the best deals, and if your lender makes an administration charge if you switch insurers, ask the new insurer to pay it. Some, including Direct Line, will do so, but always ask.

What APR am I paying? Lenders quote an annualised percentage rate (APR) to help consumers differentiate between various mortgage and loan rates. So, if your lender charges a higher property valuation fee, their effective rate of interest is also higher.

Though a good idea in practice, the APR is both complex and, for many borrowers, meaningless. Instead, look at what you would pay up front and each month - you may find that the APR quoted in the adverts does not reflect which lender will be cheapest.

What is your track record on interest rates? Unless your lender has recently changed ownership, their track record may give a good indication as to future likely competitiveness. Watch out for lenders slow to cut, but quick to raise, their interest rates.

Do you subscribe to the Mortgage Code? This is a voluntary code of practice put together by the Council of Mortgage Lenders (CML) and the Mortgage Code Register of Intermediaries. You can get a copy from the CML, on 0171-440 2255. The code lays down agreed practices and standards. If you have a complaint, refer to the code; it tells you what to do if your lender will not help.

Will my endowment policy still pay off my mortgage? One in three people pay interest only to their mortgage lender and take out an endowment life policy to pay back the capital at the end of the mortgage.

Declining with-profit bonus rates in recent years may mean that some policies could show a shortfall on maturity. If your lender cannot answer, your insurer should be able to. If there may be a shortfall, it could make sense to pay more to your lender now each month rather than have an unwanted lump sum to pay off later.

Can I switch mortgage repayment method? Even if you have an endowment policy that may fall short, do not stop it. Most policies have high initial charges, which fall away leaving lower annual charges. Make no change without getting professional advice first but, if you can afford it, consider switching to a repayment mortgage now, so you start to pay off some capital each month, but keep your endowment going. When it matures you should have enough to pay off the mortgage and a nice cash sum too.

What if I run into financial difficulties? If the feared economic turn- down comes about, or you lose your job, split up with a partner or become ill or disabled, your mortgage payments could be under threat. As soon as that looks likely contact your mortgage lender immediately. Some are more sympathetic than others but most will genuinely try to help. At the least, they can set out all the options for you. Talk to your financial advisor too. The worst thing you can do is to say nothing in the hope that things will get better on their own. Chances are, they won't. If you want additional protection now, before you hit any problem, mortgage payment protection may be the answer. This pays your mortgage for up to a year if you become unemployed, or long term ill or disabled. It typically costs around pounds 7 a month per pounds 100 of mortgage payment protected and can be taken out with your mortgage or added later. Shop around to get the best deal.

Andy Couchman is publishing editor of 'HealthCare Insurance Report'

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