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Maybe you’re buying your first home or maybe you’re just considering upgrade residences.  Either way, you’re going to need a mortgage to pay for your new home.  Should you apply at the bank for a loan or should you take advantage of a mortgage broker’s services?  The decision really depends on a variety of factors, but most important is your personal preference and needs.

How do mortgage brokers differ from loan officers?  As an employee of a bank or lending company, a bank loan officer processes loans and mortgages for his or her employer.  The main difference between loan officers and mortgage brokers is that mortgage brokers are not employees of a particular lending company; they are independent or freelance agents.  Mortgage brokers can work with just a few or even hundreds of lending companies whereas a bank loan officer is an employee of one particular bank.  Though a bank officer may be able to offer a few different types of mortgages, they all originate from just one place whereas a mortgage broker works with tens or even hundreds of companies to get you a good interest rate and terms for your mortgage. It is a mortgage broker’s job to bring together borrowers and lenders – for a fee, of course.  A mortgage broker is essentially a go-between.  They do not lend you the money; they find the people who will lend you money for your new home.

Mortgage brokers do a lot more of the research for you.  They evaluate you as a homebuyer, and taking into account your credit standing, they decide which lender will best suit your needs.  A mortgage broker submits the loan application on your behalf and works with you until it goes through.  You can do this research yourself if you have time, but a mortgage broker has a working relationship already established with many of these lending companies and that may result in a better deal for you.  Mortgage brokers secure loads through many types of investors including investment banks, savings and loans and even private sources.

Most of the mortgages you may have seen on the Internet are put there by mortgage brokers.  Many in-person or online mortgage brokers have connections to lenders in all different parts of the country, which is something that has its own pros and cons.  You may end up getting a better rate, but an out of Area Company may not have the necessary knowledge of property in your area or specific property features and classifications.  In the longer run, this probably won’t be an issue; there just might be a slight delay in processing your application until all terms and questions about the property are answered.

If you’re having trouble securing a loan from a bank, a mortgage broker may be your best bet.  Mortgage brokers are often able to find a lender for applications that banks refuse.  So there is hope if your local bank has turned you down – you just need to expand your search for a lender to online banks or a mortgage broker.

To prepare for a meeting with a mortgage broker, you should obtain copies of your credit history.  Though a mortgage broker is able to do this, it will save time and hassle if you bring these with you to the initial meeting.  The mortgage broker will be able to give you a much clearer idea of the type of loan and terms he or she can secure for you if they know what your current credit situation is.

You do need to remember that mortgage brokers get paid a fee for the transaction so they are working for their own interests as well as yours.  The higher a rate they get for the lending company, the more their commission will be so let them tell you what terms they can obtain rather than what you’re willing to accept.

Remember that everyone’s needs are different.  Talk to family and friends and see whether they secured their mortgage through the bank or through a mortgage broker.  Do some investigating to find the best loan terms and transaction time.  Your real estate agent may also be able to make some useful suggestions or even refer you to a suitable mortgage broker.

The Council of Mortgage Lenders’ figures are showing a growing trend in interest only mortgages. From January to March 2002, 9% of new mortgages were interest only. Now take the period from October to December 2005, and the amount of new interest only mortgages has risen to 23%. In the same timeframe, the number of first time buyers choosing interest only mortgages has increased from 6% to 15%.

There’s a good reason for this upturn, and that’s because the monthly payments are so much lower than with a repayment mortgage. All you have to do is pay the interest, delaying the repayment of the capital itself until the end of the mortgage term when it is paid off in full.

Getting an interest only mortgage is an easy way to avoid having to change lifestyle habits like eating out and holidays – and having a mortgage is incredibly affordable this way. However, we think that there could be a lot of people in trouble in the future when they realise that they didn’t start saving soon enough for this eventual lump sum payment.

The Financial Services Authority (FSA) have voiced concerns about homebuyers potentially getting an interest only mortgage and not making sufficient provisions to pay off the capital, so as a result mortgage lenders have tightened up the rules on interest only mortgages. Now you need to provide proof of an alternative savings fund to cover the capital, before they will agree to lend you the money. The most common ways to save include pensions and ISAs, regular payment schemes that could potentially save more than the capital required. Of course, they may also fall short. The main danger is that the homebuyer will go and cancel the savings plan once the mortgage has been agreed.

If a borrower decides not to save money to cover the capital, the only option would be to sell the home and then buy a home of less value when the time comes to repay the capital. This is not a scenario that the FSA and lenders want to be faced with, especially as property prices cannot be depended on.

Back in the 1970s and 1980s interest only mortgages were very popular – homebuyers would take out an endowment policy to cover the capital repayment at the end of the term. However, we all heard in the news recently about endowment policies under-performing – many borrowers were not able to cover the capital because of an endowment shortfall. They were considered to be a ‘guaranteed’ way of saving, but they did not fulfil their promise. In a similar way, there’s no way to be sure that an investment product will have performed as well as is needed when it comes to paying back the capital in 20 years time.

As people realised that the endowment policies had under-performed, the whole concept of getting an interest only mortgage with a separate savings vehicle fell out of favour, and now repayment mortgages are the norm. But from the recently published statistics mentioned earlier in this article, it looks like the tide may be turning again. For some people it’s the only option. House prices are too high for many people to be able to afford the full repayment mortgage payments.

So it looks like interest only mortgages will be becoming a lot more popular again, but we think that mortgage lenders could do more to help homebuyers see the other options available to them. For example, a mortgage doesn’t have to be over 25 years – the term can be extended to 30 or even 35 years, which would help lower the payments on a repayment mortgage considerably.

A 25-year repayment mortgage of £125,000 at 4.9% will cost £731.69 per month. Stretch the mortgage over 35 years instead, and the monthly payment is £103.53 less at £628.16. That can make the difference between a mortgage being not affordable and affordable.

Many mortgages now offer the option of overpaying when you can. So just because a mortgage is over 35 years, it doesn’t mean it will take 35 years to pay it off. Many homebuyers move house every eight to ten years as well, so the mortgage never needs to run its full course. It’s then a good opportunity to reassess how much you can afford on monthly repayments.

There are other options too, like a mortgage in which you repay half of the capital on repayment, and the rest at the end. It means you get a head start on repaying the capital, and the mortgage can always be renegotiated if you feel you can afford to pay more each month.

Our most serious advice is this – don’t try and make a decision about something as important as a mortgage without getting advice from a professional first. There are a number of solutions so it is always best to get the whole picture from someone who knows the market well.