Based upon British Law (The information contained within this document may need to be varied under differing countries Laws/Standards and requirements.)
I recently decided to take out a second mortgage on my home; I have twice bought and paid for two of the houses that I have lived in and this is the second time that I have had to re-mortgage.
I however do not want to do this but circumstances dictate that I have little option.
There may be serious repercussions when you re-mortgage or indeed if you intend to borrow money using your home for collateral/security, think hard and long before you commit yourself to any contract.
WARNING FIRST: Your home may be at risk if you do not keep up with the payments of any loan, mortgage or re-mortgage, where your home is used as an assurance against payment default.
The first thing is to try and get several quotations for loans/mortgages from as many companies as you feel comfortable with, do not skimp on the amount of quotes that you get because they, believe it or not can vary in so many ways. It is surprising the differences between companies and just what they will charge you for, some will charge for legal fees, search fees, surveyor fees and the big one, administration. The administration fees can be absolutely whopping so along with the credit charges they also make a packet here too.
There are numerous companies advertising on TV, many of these are aiming their adverts at the idea of consolidation of debts but don’t make your decision based upon this theory. You want a loan for whatever purpose and this type of loan or mortgage would perhaps help you but it does not have to be specifically with consolidation in mind. You may want the money for something else, a building project or a new etc.
Things to look out for are: charges made for administration (Setting up the deal and doing the paperwork) these charges in some cases can be extortionate so check the terms, check the charges here.
If a solicitor is used (And most likely this will be the case, if your home is involved in the transaction) then check just what the charges are for (Telephone and ask) they will say conveyance fees and searches but don’t be fooled because this is often one of the highest charges made and one of the least necessary.
Yes you may well need the conveyance and searches but they do not need to be expensive, here they could give you the option of using your own solicitor, you could help with some of the search work here by informing them of the whereabouts of the deeds of your house, the name of your mortgage company or previous mortgage company. Your deeds may still be in their hands as mine were but they tried in one instance to charge me 399. (My mortgage came from the same company, who still held my house deeds at my request, so not much searching needed there then!)
Another ploy is the interest rates, yes I know that they are supposed to be Regulated by the Financial Services Authority’ but that does not stop them making high interest charges against what you are borrowing.
Some loan companies do tend to have a not so good a reputation so find those who you have heard good feedback about.
Mainly I would suggest talking to family members about good lenders, they will be more usually reliable when giving feed back; they have nothing to gain with their input.
INFORMATION: Get all of the CHARGES and INTEREST RATES in writing, this will help you to compare and choose the best deal.
Sometimes some of the charges are incorporated within the loan or mortgage, bear in mind that yes you won’t have to pay them immediately but you will pay interest on these charges for the term of the loan/mortgage.
This can happen say if you want to borrow 3,000 and there are charges for services, assume the services (Solicitor, Valuation charge, Administration charges) come to say 400) the money in your hand might be actually only 2,600 but you pay interest on the full total for the term of the loan/mortgage (At the rate specified in the agreement)
IMPORTANT POINTS TO REMEMBER:
(1) Find out just how much the charges amount to.
(2) Make sure that you are aware of exactly what the interest rate is.
(3) Make sure that you can make the payments specified regularly and within the times stated.
(4) Check that the amount you are getting is adequate for your needs if it also includes the expenses incurred for the administration work.
(5) Do not accept in your desperation the first offer made to you, question the company about anything you do not agree with or have any doubts about.
(6) Check that if you do pay back over amounts not needed by you, that your periodic payments (Monthly, Weekly) will be reduced pro rata against the balance owing.
(7) One other major point to look out for is, are there any penalty clauses if you pay back your debt sooner than the contracted period. Some companies will lend you a specified amount and this may be more than you need to borrow, if you want to pay back what you do not require sooner rather than later then check for these clauses. Check if this reduces the periodic payments and if it reduces the period of how long the loan will take to pay back.
(8) Always check that there are no additional legal fees otherwise this could add to your payments and the interest charged to you.
(9) Finally if you do go ahead with these forms of financial arrangement make sure that you get anything agreed in writing before signing the contract.
I wish you well in your financial dealings, just bear in mind the most important ingredients for smooth and trouble free debt management are patience and vigilance.
It is a good idea to borrow money from companies recommended by relatives and friends, after having done all of the research and checking mentioned before, because these companies my save you a lot of unnecessary work because they are known to the person making the recommendation. It is fair to say that if they value an already customer of theirs then they may well be more inclined to be more flexible and competitive.
This update I feel (27th March 2008)was necessary because clearly some people have little concept (based upon the email I received) of just what is likely to affect your future and what is associated with a persons financial status/stability.
I received an email from one of the members on Helium’s site; he said that he thought my article was not under the correct title. Incidentally he had written only one article so I wonder what made him feel that he was qualified to decide which title I should have written this article under. Well if you don’t agree with me that borrowing money is a major factor that will have a serious impact on your finances then what do you think will? Whether it is a loan or a mortgage or for whatever the purpose of said borrowing, all borrowed money has ultimately to be paid back and the vast majority of the time with interest too.
It is especially true when you are borrowing money as I intend to, based upon a re-mortgage for a substantial amount which will clearly affect all other payments and of course all of my other finances.
It is not unknown for companies to arrange a loan entirely/almost entirely over the phone, when you actually sign up your documents may be delivered by a courier service, the driver of this type of delivery often has no knowledge of the contract whatsoever and he may not be able to assist you with any problems or queries. If you are not sure about any matter relating to your financial request then DO NOT PROCEED. Obviously not all companies are created equal and their attitudes and procedures associated with their businesses will vary a great deal, I know I keep saying this throughout this article but please remember, be thorough and only sign up when you are absolutely sure, get help from relatives and people you have trust in, let them read the terms and conditions of the contract because you may have missed something important that they may pickup on.
I hope that your financial matters go well and so they should if you adhere to the guidelines pointed out in this article, do not become one of the statistics of those people that loose their home or have to declare bankruptcy because their finances got out of hand.