Mortgage: What is a Self-Certification Mortgage?

Mortgage: What is a Self-Certification Mortgage?
by Bill Stone

A self-certification mortgage is a mortgage designed for people who are unable to provide proof of income. This type of mortgage was originally designed for the self employed who historically experienced difficulty obtaining a loan with 'high street' lenders due to not having audited accounts available.

If you are unable to show your earnings due to being self-employed, a seasonal wage earner, or anyone with irregular earnings such as a contract worker or commission-based employee, or in salaried employment with a supplementary source of income, an unsalaried company director, or varying other reasons - a self-certification mortgage could be the best option for you.

• Certify Earnings
  

It allows borrowers to certify their own earnings without having to supply documentation, such as payslips. You declare what your income is but generally you do not need to provide any proof. You can apply if you are employed or self employed. It can also be suitable for professionals who often start on a low salary, but whose incomes can rise rapidly. It has also found favour with salespeople and other workers who receive a high proportion of their income as commission or bonus. Even though you may have achieved high earnings this way for years, commission or bonus may still not be considered in calculations by high street lenders.

A self-certification mortgage is suitable for applicants whose income is not easily verifiable, like the self-employed or those that receive commissions. If you're self-employed, a contractor, have irregular income or multiple jobs, you are probably one of many who know you can afford a mortgage but have difficulty proving your income. They are also quite good for people just starting out in a new career with good steady income and a fair amount of deposit behind them.

It is ideal for self employed people who perhaps have not been in business for the required three years or cannot produce accounts for a three year period but can demonstrate usually through an accountant's reference that they can meet the mortgage payments.

When applying for this type of mortgage you will be required to state your expected annual earnings. The mortgage will be offered on the basis of your likely income rather than you having to provide any documentary evidence.

• Deposit
  

A self-certification mortgage used to require a higher deposit of up to 25%, but now some lenders can offer up to 90% loan to value. Lenders will usually lend up to three and a half times declared income or two and three quarter times joint income. However, with a deposit of 25% or more a self-certification mortgage can usually offer up to five times your declared earnings.

It caries a higher rate than standard mortgages because statistics show most businesses fail within the first two years of trading. So if you were to be left with heavy debt there is a possibility you could lose your home. However, some mortgages are better than others, and, if cash flow is a problem, it's worth checking out those that offer payment holidays and the facility to pay more when you can.

Fortunately there are a number of competitive self-certification mortgage products available, depending on your circumstances and individual requirements. They are now supported by an ever increasing number of mortgage lenders, including mainstream as well as specialist lenders. Interest rates charged are now far more attractive.

It has become increasingly popular in recent years. However, you should always remember that you will be asked your income on the application. Just because you are in a self certification situation, you should only put down your actual income. To do anything else would not only be fraud, but could also mean that you are unable to afford your mortgage repayments, especially if mortgage rates rise in the future.

Mortgage: Tips to Pay off Your Mortgage Faster

Mortgage: Tips to Pay off Your Mortgage Faster
by Dr. Doug Willen

Many people today are unhappy with their mortgage. When we purchased our home, we talked ourselves into the idea that paying down our mortgage would get easier as the years went by. We rationalized that, in a few years we would be making more money, and even though our current mortgage payment was a stretch... It would get easier as time went by.

However, this isn't always the case.

Some of us did make more money, but our expenses went up, too.

Some people have a variable rate, and your rate, and monthly payment may now be higher than when you first started to pay on your current mortgage.

Some people may even have a negative amortization loan. Commonly called a Neg Am, which means you pay less than your scheduled interest-only payment, and your principal actually grows each month.

This is the exact type of mortgage that my wife and I selected a few years ago, and it looked so "flexible" at the time. Ours was called an "Option Arm", meaning you could pay one of 4 options of mortgage payments. Option one was less than interest only. Option two is interest only. Option three is a full principal and interest payment based on 30 year payoff. Option 4 is a full principal and interest payment based on a 15 year payoff. At the time, we could only afford option one, which means we would be going down the financial drain, at a rapid rate.

We, like so many others, base our budget, on option one. And now our principal has literally grown, by over $25,000 in the last few years. With the home values down in our area, we will be upside down in our house if we don't do something to correct it. It makes me sick just to think about it.

So...What are the solutions?

Well the easiest solution is to simply pay more money each month towards your principal. This works.

But the problem is... "Where does the extra money come from?"... Do you have it lying around? How much more can you send in each month, and how many months in a row, can you keep that pace? But if you could send it in, you would be out of your mortgage many moons faster!

Another good idea is the Bi-Weekly plan. Bi-weekly, is simply paying your existing payment, in two chunks, twice per month, instead of once. For example, if your mortgage payment was $1000. Sending in $500 twice per month is an effective strategy, for paying off your mortgage faster. It has the potential to knock off, 5-7 years on a brand new 30 year mortgage. I never figured out, why less than 2% of Americans take advantage of this technique.

Another tip is to refinance at a lower interest rate. We may actually be seeing lower interest rates on the horizon. We've seen a drop in the beginning of 2008 already. Be careful, to really do your homework, and shop around. Compare all the hidden costs, too. Some lenders offer a better rate, buy you pay a higher closing cost. So, really crunch the numbers, and make sure it's a good deal, before you sign.

Mortgage Loans: Loan After Bankruptcy

Mortgage Loans: Loan After Bankruptcy
by Mary Wise

Filing for bankruptcy can be a very stressful process. Not only does it mean that you are up to your neck deep in debt, but also that you have no means of repaying it, at least any time soon. After the bankruptcy is discharged, you will be debt free, but it will have left a huge stain on your credit report that will stay there for at least 10 years. It does not sound good, now does it?

The main concern people have after going through bankruptcy is whether they will be able to get finance in the near future or not. This is not an easy question at all, as some other things have to be taken into consideration, such as monthly income, possession of assets to pledge as security, etc. As a general rule, it will be hard to obtain finance after bankruptcy, but it is completely feasible. There are no reasons to believe you will not be eligible for a loan.

When It Comes To Mortgage Loans

You are thinking of buying a property, a home of your own. It does sound wonderful, you cannot wait to be able to see your kids running around the spacious back yard after a succulent barbecue. But there is only one issue... your bankruptcy file has just been discharged. As unlikely as this will appear, you will still be able to obtain the finance you need provided that you meet some requirements.

Mortgage Loan After Bankruptcy Requirements For Approval

This is no exact science, some lender might or might not follow the same rules. I will mention here the most common qualification requirements for anyone who is thinking of applying for a mortgage loan after going through bankruptcy.

• 1. A couple of years of good credit history
  

This is not a must, but some lenders might feel more reassured and more willing to finance your dream if they see that after filing, you began making timely payments on all your bills. This will certainly prove that you have left behind the rough patch that led to you filing for bankruptcy and are ready for a new and fresh start.

• 2. A steady job and salary
  

This is definitely the most important of requirements and the only one which is also a must. The other ones might be negotiable, but not this one. It shows the lender that you have high repayment capabilities, which is essential as this is a high-risk lending procedure.

• 3. Down Payment
  

Most lenders, if not all, require a down payment, at least a small one. Not many lenders are willing to provide 100% finance on a property, but if you are lucky you might be able to find one who will. It is a matter of thorough research and tons of patience, but if your dream house is your ultimate goal, I am sure you are going to do everything in your power to get a good deal on the mortgage loan.

It is not impossible to get a mortgage loan after going through bankruptcy, you just need to let some healing time go by, one year in the least. I hope you all the best, and may you find the right lender and the perfect home loan.

Should You Sell Your Endowment Policy?

Should You Sell Your Endowment Policy?
by Suzanne Ames

Where and who do you recommend selling an endowment policy to other than the company to whom I have it with? Would I get more value from the surrender value choosing this option?

Answer

The market for second-hand endowments has grown considerably as a result of changing lifestyles and disillusionment over poor returns. Endowment policyholders have always had the option of surrendering their policy to the life assurance firm that issued it if they do not wish to hold the policy to the end of its term.

One alternative is to make the policy "paid-up" - this means you make no more contributions to the policy but leave it to maturity with the contributions you have already made.

However, if you have a with-profits endowment policy you have further options as well in the second-hand market. A number of firms offer facilities where you may sell your policy or auction it.

Why would you do this? Quite simply, because, in many cases, you may be able to get a better return than the surrender value quoted by your life assurer. Unfortunately, there is currently no market for unit-linked policies.

Of course, there is no guarantee that you will receive more for your policy by selling it rather than accepting the surrender value but uplifts of 5-15% depending on the size of policy and the length of time to maturity have been achieved.

Do remember, however, that if you do decide to dispose of your endowment policy you will also be saying goodbye to the life insurance element as well. If you still require the life cover, you will need to replace this.

So, why would anyone want to buy a second-hand endowment policy? Buyers are hoping that the growth in their 'investment' will come in the form of the terminal bonus. This is an amount paid by the life company at the end of the term. It is not guaranteed, but is designed to reflect the performance of the underlying assets within the investment since inception.

Some life companies command higher prices than others, mainly due to their record of bonus payments. At the time of writing, Scottish Amicable, Scottish Provident, Norwich Union and Clerical Medical policies are all viewed attractively in the open market. Policies that are at least £5,000 in value and have at least five years away from the end date are also most desirable.

In order to get a quote for the second-hand value of your policy, you will need to go through an intermediary such as a independent financial adviser.

What is an endowment policy?

What is an endowment policy?

A traditional with-profits endowment policy is a regular savings policy, combining life cover and investment with guarantees that a minimum amount, the sum assured, will be paid after a specified number of years at the maturity date.

The premiums are invested in a with-profits life fund to achieve steady returns for policyholders. Normally the fund declares an annual reversionary bonus, which cannot be taken away after it has been awarded. In this way the guarantee of the minimum policy maturity value builds up year by year, consisting of the basic sum assured and the total of annual bonuses awarded.

A terminal bonus is normally added when the policy matures. However, it should be remembered that investment returns cannot be guaranteed and that future life fund profits can go down as well as up.