Monthly Archives December 2008

Is the Best Mortgage Rate Actually the Best Deal?

No-one can deny that upheaval in the banking sector and dramatic base rate cuts by the Bank of England suggest tough times ahead.

Thousands of workers face redundancy, a bleak outlook for Christmas and probably not a particularly happy New Year.

Rates have been cut in an attempt to stimulate a faltering economy but public confidence is out of the window and people are reported to be tightening the purse strings.

But there is opportunity for some to start taking advantage of very low mortgage rates.

The problem is these opportunities are only available to consumers considered to be ‘low risk’ to mortgage lenders.

So, if your mortgage is below 60% of the value of the property, you have a good credit rating and are in a good steady job or stable self employment there are some pretty good rates available.

Alliance & Leicester have a 2 year fixed mortgage available at just 3.99% but beware, the arrangement fee is 1% of the loan plus a valuation fee and legal fees.

A £100,000 loan would attract a fee of £1000, a £50,000 loan would be £500 but if the loan is £300,000, the fee will be £3000.

Compare this to a 4.19% 2 year fixed rate offer from Northern Rock with a £995 fee:

£303,969 (including the £3000 fee, £670 valuation & £299 legal fees) on a repayment basis at 3.99% gives a monthly payment of £1602.78

(The valuation fee is high because for this to be realistic the property must be worth over £500,000 so the loan-to-value is below 60%)

At 4.19% with a free valuation, free legal fees and a £995 lenders fee (giving a loan of £300,995) the repayments would be £1620.51. Which is £17.73 per month more.

Over the 2 years that equates to £17.73 x 24 = £425.52 saved in repayments by opting for the 3.99% product.

But, it’s cost £3,969 to get it compared to £995. A difference of £2974 just to save £452.52.

So the 3.99% offer may look attractive but it will actually have cost £2974 – £452.52 = £2548.48 more in total over the 2 years.

Now lets be more realistic. What if the mortgage was only £150,000?

Using a property value of £250,000 the valuation fee for the 3.99% Alliance & Leicester product would be £340, the legal fees approximately £299 and the 1% arrangement fee is £1500 giving a total of £2139. The monthly repayment would be £802.21

The same scenario for the 4.19% Northern Rock offer with just a £995 fee gives a monthly repayment of £812.93.

The difference in repayments is £10.72 x 24 = £257.28 over the two years.

£2139 – £995 = £1144 difference in upfront costs – £257.28 = £886.72 more expensive in total for the lower rate.

Once again, the Alliance & Leicester 3.99% 2 year fixed deal may look attractive if you’re just interested in the rate but after the 2 year fixed period it could still have cost hundreds if not thousands of pounds more.

Always factor in the fees!! – Or ask an expert!



Accident, Sickness & Unemployment Insurance – Slump on the cards?

As the global financial crisis continues to erode consumer confidence and the prospect of facing redundancy looms ever closer for many UK workers you could be forgiven for thinking sales of income protection would increase.

Many factors however can curtail an immediate uptake of new protection policies.

For instance if the threat of redundancy is already known about cover is not likely to be offered and many Accident, Sickness & Unemployment (ASU) insurance policies also have a clause preventing any claims during the first 90 days.

This would indicate that unemployment cover is something people should consider having regardless of the state of the economy or the risk of potential job loss and not something to be purchased as an afterthought as well as combining the cover with savings designed to ‘take up the slack’ in the event of loss of earnings.

If ever there was a rainy day for which to save, this is surely it. (Isn’t hindsight a wonderful thing!)

Get a quote online for: Accident, Sickness & Unemployment Insurance

Recent developments and announcements made by government lately may also have a huge impact on the sales of ASU policies.

From January 2009 (according to Shelter) Income Support for Mortgage Interest (ISMI) will be available from 13 weeks (3 months) after a claim instead of the previous waiting period of 39 weeks (nearly 10 months). The maximum loan amount eligible for a claim is also increasing from £100,000 to £175,000.

ISMI is designed to pay just the interest part of a mortgage and people who are unemployed or on low incomes can get help.

On top of this mortgage lenders have been ordered to give borrowers in arrears three months before considering repossession.

So why would anyone take out an ASU policy which is designed to provide an income for up to 12 months if after just 3 months the Government will start taking care of the mortgage interest and in the preceding 3 months there is little or no risk of repossession?

The obvious reason is ‘what about the other bills and living expenses?’

Not to mention the fact that ASU will provide payment cover in the event of Accident & Sickness as well as Unemployment.

But is ASU the solution in the event of an accident or sickness when it only provides cover for 12 or 24 months? What if an accident were to render the policy holder permanently disabled?

That is where Permanent Health Insurance (PHI) comes in. PHI can provide mortgage payment protection for the full term of a mortgage to ensure the mortgage is paid off in the event that a policy holder will never be able to return to work as the result of an accident or sickness.

Get a quote online for: Accident, Sickness & Unemployment Insurance

Or: Request a call from a financial adviser – to discuss protection in more detail.