No Closing Cost Mortgage

The risk of debts, unemployment, repossession and sickness is compelling many homebuyers to seek private insurance which will increase monthly repayments by 10-12 pounds per month per 100,000 pounds of mortgage. This would cover the homebuyer for the monthly interest payment on the mortgage if they were ill or lost their job and were unable to work with no income.

Personal debt has now topped a trillion pounds and the Government is pushing these new initiatives. Homeowners are under pressure and bankruptcy is on the increase as are missed repayments and, in turn, repossessions are rising. It is no sweetener to hear that the taxpayer has paid out 8 billion pounds in benefits in the last 10 years in mortgage interest payments for the unemployed, a cost which the Treasury wish to off-load, back to the public and mortgage lenders.

Enforcing compulsory Mortgage Payment Protection Insurance (MPPI) would be unpopular as it increases costs when buying a house, but the experts say that the Government should impose that cost onto the lenders to come out of profits. It is well-known that building societies and banks make huge profits on selling MPPI and premiums are currently around 800 million to 1 billion yearly with only just under a quarter of buyers having it. The profit on this is 250 to 500 million pounds so you can understand the Government thinking.

The Government is very aware that this leaves three quarters of homeowners without any protection if they have a downturn in fortune. The benefits system offers support through Income Support for Mortgage Interest (ISMI) but this has its’ limitations on claimants.

The Council of Mortgage Lenders (CML), the voice for banks and building societies, advised first-time buyers this week, to take out insurance to protect their homes. But, they are strongly against making MPPI becoming compulsory especially if they are told to pay for it.

Their reaction is one of astonishment and they believe that if the industry has to absorb this cost mortgages will go up as the cost of the insurance will have to come from somewhere. Even if it is not seen as a separate premium, it will be built in. They say they have seen margins being squeezed for some time now making it impossible for firms to absorb this cost too.

The CML are of the opinion that people should make their own choices and arrangements regarding this insurance and it may not be appropriate for everyone. Some people may have more than adequate protection from other insurance, through their employers or substantial savings and it is unreasonable to enforce someone to over-cover themselves.

Iain MacQueen-Sims, credit and debt expert of Omnichek, dismissed the CML’s remonstrations. He believes making MPPI compulsory would create a safety net and it should not cost the home-buyers a penny more. The lenders can easily fund it without putting up prices and show some loyalty to a market that they do very well out of and try to help prevent the loss of peoples’ homes. A draft of the European Directive on the mortgage market is in favour of compulsory MPPI in all member states as standard. And a spokesman for the Department of Work and Pensions said that anyone taking out a mortgage should think hard about protecting their income.

In the wake of increasing interest rates, interest only mortgage products have become an increasingly popular tool for home owners to control their monthly expenses.

Interest only mortgage applications generally rise in number when interest rates begin to rise as home owners fear becoming victims of rising borrowing costs. Mortgage costs are typically the highest expense of the average UK household and it is therefore important for many borrowers to control this cost.

Interest rates have begun to creep up slowly from their historically low level of late and because of this more and more households are opting for an interest only mortgage.

The Bank of England has been slowly increasing the base rate in order to curb inflation. This has been having an effect on the mortgage market by prompting home owners to consider locking in the low interest rates now instead of exposing themselves to potential future rate rises.

In addition to existing home owners locking in their interest rates with interest only mortgage products, first-time-buyers can also benefit from the scheme.

Interest only mortgages can provide a method for low income earners to get a foot on the property ladder. Because the monthly repayment amount is only comprised of interest, the repayments are lower and affordability is increased.

However, the capital portion of the loan must be repaid eventually. There are several vehicles available for this including savings and investment plans, endowments, and remortgaging to a repayment loan at some point in the future.

It therefore makes sense to some borrowers to apply for an interest only mortgage in the beginning and to develop a plan to repay the mortgage balance at a later stage.

If a borrower opts for an interest only mortgage for a period of ten years, for example, they can remortgage to a repayment mortgage after that and begin to pay off the balance. After the ten years has elapsed, the home owner’s income may have increased considerably, making it easier to being to repay the balance of the mortgage.

If you are considering applying for an interest only mortgage, it is a good idea to speak to a qualified mortgage adviser for some impartial advice. An independent adviser will be able to source interest only mortgage products from the entire mortgage market and therefore find the most appropriate product for you.