Switching Mortgages: A Guide For Going Against Parents

If you're looking to switch mortgages, there are a few options to consider. You can remortgage with the same provider or switch to a different one, but it's important to seek financial advice and compare deals to ensure you're getting the best option for your circumstances. If you're thinking of taking on a joint mortgage with your parents, it's essential to understand the implications and risks, such as the potential for family tension or economic hardship if financial situations change. You can also explore alternatives like a guarantor mortgage, which can provide financial support without direct reliance. When switching mortgages, be mindful of potential costs, including early repayment charges, exit fees, and stamp duty for transferring ownership.

Switching mortgages with parents: remortgaging options

Switching mortgages with parents can be a complex process, and there are several options and factors to consider. Here are some key points to think about when exploring remortgaging options:

Joint Mortgage

One option is to apply for a joint mortgage with your parents. This involves adding your parents as co-borrowers on your existing mortgage or applying for a new joint mortgage with them. In this scenario, all applicants are named on the application and are jointly responsible for making timely repayments. This option may be suitable if you need financial assistance with the deposit or monthly payments, as it provides the lender with additional assurance that your parents can step in if needed. However, it's important to consider the potential impact on family relationships and seek independent advice.

Refinancing and Adding a Borrower

Another option is to refinance your existing mortgage and add your parents as co-borrowers. This allows you to adjust the loan's terms and rate and can make it easier to add another borrower. However, it's important to note that refinancing doesn't release the original borrower from their liability for the loan. Additionally, unofficial transfers, where your parents send payments to you, and you then pay the loan, are generally not recommended as they can break the terms of the mortgage.

Taking Over Your Parents' Mortgage

If your parents are facing financial difficulties and are unable to make their mortgage repayments, you may consider taking over their mortgage. This typically involves applying for a new home loan and ensuring that the old loan is paid out. It's important to involve a mortgage broker, solicitor, and any other legal adviser to guide you through the process and protect the interests of all parties involved. Additionally, both your and your parents' income, credit history, and financial situation will need to be assessed for serviceability.

Switching Mortgage Providers

If you're considering switching mortgage providers, you can do so by remortgaging your property with a different lender. This can be done to find a better deal, release equity, or take advantage of a fixed-rate mortgage ending. Before switching, it's essential to check your credit report, improve your credit score if needed, and understand any early repayment charges or exit fees associated with your current mortgage. You can also seek advice from an independent mortgage advisor who will consider your personal circumstances and find the best deals available in the market.

Guarantor Mortgages

If you want to maintain your independence while still receiving financial support from your parents, a guarantor mortgage might be an option. In this scenario, your parents act as guarantors on your mortgage, and their property is held as security. This can increase your borrowing power and make it easier to obtain a high Loan-to-Value (LTV) mortgage. However, it's crucial to understand the risks involved, as the lender can repossess the guarantor's property if you default on your repayments.

Pros and cons of joint mortgages with parents

While it is possible to take over your parents' mortgage, banks will generally not allow you to simply assume a mortgage title entirely. Instead, you will need to apply for a new home loan and the old loan will need to be paid out. However, there are some solutions for taking over your parents' mortgage with the help of a mortgage broker and solicitor. Both you and your parents' income, credit history and overall financial situation will need to be assessed for serviceability.

If you are considering a joint mortgage with your parents, it is important to weigh the pros and cons before making a decision. Here are some things to keep in mind:

Pros of a joint mortgage with parents:

• Increased borrowing power: Lenders take into account the combined income of all applicants, which can boost your borrowing power and make it easier to qualify for a larger mortgage.
• Improved credibility: Having your parents as co-signers can add financial weight and credibility to your application, especially if you are a first-time buyer.
• Assistance with deposit: If you need help raising a deposit for your dream home, a joint mortgage allows your parents to provide financial support either indirectly or through a mortgage product designed for this purpose.

Cons of a joint mortgage with parents:

• Liability for repayments: All applicants are jointly liable for repayments. If one party defaults, the other will have to cover the payments. This could strain family relationships and affect your creditworthiness.
• Potential for conflict: There are many important decisions to be made, such as ownership terms and when to sell the property. If you and your parents cannot agree on these matters, it could create conflict.
• Additional costs: While a joint mortgage can save money initially, there may be extra costs down the line, such as stamp duty, conveyancing costs, and capital gains tax if the property is sold at a profit.
• Impact on independence: Taking on a joint mortgage with your parents may impact your sense of independence and autonomy. Consider whether this arrangement aligns with your personal values and goals.
• Age restrictions: Most lenders have age restrictions for homeowners, with some capping the maximum age as low as 65. If your parents exceed the lender's age limit, you may need to adjust the mortgage term and increase repayments.

It is essential to carefully consider these pros and cons and seek impartial guidance before entering into a joint mortgage agreement with your parents.

Taking over parents' mortgage: what to do

Taking over your parents' mortgage is a significant decision that can be appealing, especially if they are struggling to meet their loan repayments. However, it is a binding financial agreement that can have costly implications if not carefully considered. Here are some steps and considerations to help guide you through the process:

Consult Professionals

Due to the complexity of the process, it is highly recommended to seek professional help. Consult a mortgage broker, a qualified solicitor, a real estate lawyer, a financial advisor, and any other legal adviser to ensure you are making an informed decision. These professionals can provide valuable insights and guidance tailored to your specific circumstances.

Understand the Risks and Implications

Taking over your parents' mortgage means stepping into a financial agreement that comes with certain risks. Understand that you are taking on part responsibility for the mortgage, but you may not be entitled to anything if the property is sold. There is also a potential for family conflict, and ties can break down. Additionally, consider the financial implications, such as the impact on your credit score, the stability of the mortgage, and the potential for higher interest rates or increased monthly payments.

Explore Options with the Lender

Discuss your intentions and options with your lender. Some lenders may make exceptions for transfers between parents and children, but this is not always the case. Be open and transparent about your situation to find a solution that works for both parties.

Assess Serviceability

Both you and your parents' income, credit history, and overall financial situation will need to be assessed for serviceability. This assessment will determine your ability to make the mortgage repayments and is a crucial step in the process.

Understand the Property Title and Will

Ensure that you understand the implications of the property title and how it affects your rights and responsibilities. If you are expecting to inherit the property, confirm that you are named as beneficiaries in the will. Understand that if your parent remarries, the property could revert to their new spouse instead of you.

Consider a New Home Loan

If taking over the mortgage is not feasible, you may need to apply for a new home loan to help your parents pay off their existing loan. This option should also be carefully considered, as it will come with its own set of financial obligations and implications.

Remember, each situation is unique, and it is essential to weigh the pros and cons carefully before making any decisions regarding your financial stability and family relationships.

Guarantor mortgages: risks and benefits

Guarantor mortgages are a way for people to help their loved ones get on the property ladder. Guarantor mortgages are a complex undertaking, and they are not widely offered by mortgage brokers. However, they can be a brilliant option for many buyers. Guarantor mortgages can help buyers borrow more than they would have been able to otherwise. For example, if a borrower needs £150,000 but can only qualify for £100,000, a guarantor could enable them to borrow the extra £50,000. Guarantors are usually parents, relatives, or friends.

Risks

There are several risks associated with guarantor mortgages. Firstly, if the borrower defaults on their mortgage payments, the lender could repossess the guarantor's home or use their savings to repay the debt. The guarantor's home may also be repossessed if they fail to keep up with repayments on any other debt secured to it. Being a guarantor is a long-term financial commitment, and guarantors are jointly liable for the mortgage. Guarantors should also be aware that their credit score will be linked to the borrower's, so if the borrower fails to make repayments, the guarantor's credit score will be affected. Additionally, acting as a guarantor can be risky as it may cause family feuds or end friendships if the borrower cannot make repayments.

Benefits

One benefit of guarantor mortgages is that they allow buyers to get on the property ladder, even if they have a bad credit history or limited credit history. Guarantor mortgages can also help buyers borrow more money than they would have been able to without a guarantor. Additionally, guarantors can help reduce inheritance tax liability by gifting a sum of money to their loved ones earlier in life.

Considerations

Before agreeing to be a guarantor, it is essential to seek independent financial advice from a qualified advisor who is familiar with guarantor mortgages. Guarantors should also consider asking the borrower to take out income protection insurance to protect themselves if the borrower loses their job or becomes ill. Guarantors should only agree to be a guarantor for someone they know well and should carefully consider whether the borrower will be able to manage the repayments.

Switching mortgages: costs and savings

Switching mortgages can be a daunting task, especially considering the legal fees, paperwork, and costs involved. However, it can also help you save money. Here are some key points to consider regarding the costs and savings associated with switching mortgages:

Costs of Switching Mortgages

When switching mortgages, you will likely incur various costs, including:

• Legal fees: You will need to employ a solicitor to process the switch, handle the paperwork, and liaise with the new lender. The solicitor's professional fee, along with their outlays, associated costs, and VAT, will contribute to the overall legal expense.
• Valuation fee: There is typically a valuation fee associated with switching mortgages, which covers the cost of an up-to-date valuation of your home. This valuation is necessary to determine the loan-to-value (LTV) ratio, which lenders consider when reviewing your application.
• Early exit or redemption fee: If you are on a fixed-rate mortgage and want to switch before the end of the fixed term, you may have to pay a penalty or breaking fee for ending the fixed-rate early. This is often referred to as a redemption charge or early redemption fee (ERF).

Savings and Incentives

While switching mortgages can entail costs, there are also opportunities for savings and incentives:

• Lower interest rates: Moving to a lower interest rate is one of the primary ways to save money by switching mortgages. A lower interest rate reduces the overall cost of your loan.
• Special offers and cashback: Many lenders offer special promotions, such as cashback incentives, to encourage borrowers to switch to them. These offers can help offset the legal fees and other expenses associated with switching.
• Green mortgage rates: If you have improved the energy efficiency of your home through renovations, you may qualify for a "green mortgage" rate, which could be lower than your current rate.
• Variable-rate flexibility: Switching to a variable-rate mortgage can provide more flexibility if you're currently locked into a fixed-rate mortgage. With a variable rate, you can switch at any time without incurring early exit fees.

Important Considerations

When considering switching mortgages, it's essential to weigh the costs against the potential savings:

• Lifetime cost of the loan: While cashback incentives and special offers are attractive, it's crucial to consider the total cost of the loan over its lifetime. Ensure that any short-term gains don't result in higher long-term costs.
• Credit history and repayment record: Lenders will assess your credit history and repayment record when reviewing your application. Missed repayments or credit issues could make it more challenging to switch and may impact the terms offered by the new lender.
• Serviceability assessment: When switching mortgages, the lender will evaluate your ability to make the new mortgage repayments. This assessment considers your income, credit history, and overall financial situation.

Frequently asked questions