Mortgage Help!

Bart1979

Hi. We got a fixed rate mortagage for 2 years which runs out in Sept this year. I have a couple of concerns over getting a new one that I would love help with:
1) Are we guaranteed to get another mortgage? I dont have very good credit rating - old student debts, so am worried when we re-apply for a mortgage we will struggle to get another one or is it the case that when you have got 1 mortgage, it will carry on?
2) How do we go about getting a new mortgage? Do we have to get it and look ourselves or do we go back to the same financial advisor we used originally?
3) Are we better off going for a interest payment only mortgagte or stick with a fixed rate one? We would like to try and pay a little lesss per month.

We are currently paying £800 per month on a 120K mortagage, plus 10K loan repayment plan?

Sorry for all the questions - it's all new to us and we're pretty stuck!

Robert_Sterling_3

AS far as I know, and there may be exceptions, your mortgage is usually for 25 years.
The mortgage usually says some thing along these lines:-
The interest rate will be fixed for two years after which it will revert to the Standard Variable Rate at that time. So if you do nothing you automatically go on to the SVR. You may however seek a new fixed rate, or tracker rate, or interest only rate which you may or may not be allowed to have.

Martinslovechild

Bart1979 wrote: »

1) Are we guaranteed to get another mortgage? I dont have very good credit rating - old student debts, so am worried when we re-apply for a mortgage we will struggle to get another one or is it the case that when you have got 1 mortgage, it will carry on?

You will automatically revert to the lender's standard variable rate (SVR) at the end of the fixed-rate term (i.e. September). Depending on which lender your mortgage is with, there's a chance that this may be a lower interest rate than you're currently being charged on your fixed-rate deal, due to Bank Rate falling steeply over recent months.

Should you decide to take out a new fixed-rate deal instead, availability and acceptance really depends on how much equity you will have in the property at the time of applying for a new deal. Given that house prices have fallen over the past 18 months by between 15-20%, it's likely that your equity has eroded as a result (i.e. if the house originally cost you £130,000 and you put down a £10,000 deposit, you may find that the house is now worth only £110,000 which means that if you attempt to apply for a new deal, your effective equity is zero).

If you have little or no equity, the likelihood is that you'll be forced to accept your existing lender's SVR as other deals will be unavailable to you; if however you have considerable equity (40% or more) then there should be lots of choice available to you.

Bart1979 wrote: »

2) How do we go about getting a new mortgage? Do we have to get it and look ourselves or do we go back to the same financial advisor we used originally?

You can arrange this yourself. By all means, use an adviser, but do some of your own research too. There are several comparison sites - Martin has a full list on one of the links available from his home page. Always bear in mind that it's not just the headline rate you need to look at - whilst a rate of 2.99% is going to 'look' great, you may find that it comes with a rather hefty 'arrangement fee'. It's always worth comparing the total cost of various deals - in the above example, a deal which charges 3.99% but has a smaller fee may work out less expensive than the deal charging 2.99%.

Bart1979 wrote: »

3) Are we better off going for a interest-only mortgage or stick with a fixed-rate one? We would like to try and pay a little less per month.

Interest-only and fixed-rate are two completely separate things. Fixed-rate deals can be set up on both an interest-only and repayment basis, whereas an interest-only deal is simply going to charge interest each month - you'll probably be asked how you plan to clear the mortgage at the end of the 25 years if you choose this option (i.e. details of your endowment policy or savings plan). It's one thing paying a little less per month but consider the long-term consequencies, especially while house prices are falling - taking the interest-only route, certainly in the short term, will erode any equity you may have further still.

Bart1979 wrote: »

We are currently paying £800 per month on a 120K mortagage, plus 10K loan repayment plan?

Check out the SVR for your lender and pop 120K into a mortgage calculator - there may even be one on your lender's website (alternatively, use www.whatsthecost.com) . It will tell you how much the monthly payments are likely to be on both a repayment and interest-only basis.