The
mortgage market is becoming increasingly competitive. Mortgage
lenders lure you in with great sounding cut-price interest
rates.
To
make up for their "loss leader" they'll try various
ruses particularly getting you to buy their insurance policies.
This is known as "bundling".
But
these home or mortage payment protection policies will be
overpriced and cost you a lot more than neccessary
.
Sometimes
they'll make out as if taking their policyis
compulsory ie it's a condition of your taking their
cut-price rate.
Increasingly they're charging a fee - often £25 - if
you insure elsewhere. (This type of penalty is known as a
"tie
in").
Even
when compared to the savings you think you're making on a
"cheaper" mortage, tie ins are unlikely to give
you the best value.
Shop
around and try to ignore compulsory insurance tie
in scams, no matter how urgently you want the mortgage.
If
you arrange insurance independently differences of up
to £150 a year on Buildings and Contents Insurance
are commonplace. That's £3,750 over a 25 year
mortgage
term.
If
that money was going into your pension fund instead the difference
could be at least £10,000. Do your future
self a favour...
Some
say that the cheap looking mortgages are a deliberate
way of luring people in to the insurance tie ins which
is where the mortgage lender makes the real money.
Nope
not yet. The government have been making noises about it for
some time but haven't quite got round to it.
There's
a myth doing the rounds that tie ins are already illegal.
It's not true. (Funnily enough it seems that the people
spreading this myth are the mortgage lenders and their agents.
Of course this would be nothing to do with making people think
they don't have to bother shopping around...).
If you need clarification on this issue call the Financial
Services Authority helpline on 0845 606 1234.
Don't worry about the fee the lender may say you'll have to
pay if you insure elsewhere. You'll more than save it - and
some insurers may even pay it for you.
The
lenders know that most people won't be fussed and will just
take their insurance without shopping around.
If
you do this it may well cost you more than you saved with
the bargain interest rate. Even worse, once you've
taken an overpriced insurance policy, you may well find that
the price goes up and you can't get out. You'll
have to pay through the nose.
Always
get three quotes when buying any financial product.
Read on:
Having
told you above about why to avoid insurance tie
ins, bear in mind that somecheaper
insurance policies may not give you the same level of cover as
the more expensive ones.
Some
would also say that it's good to keep everything under one
roof. If there's a problem you only have one organisation
to deal with... But then again, given the nature of large organisations,
where departments seem to fight each other rather than co-operate,
maybe not...
Some
lenders also claim that their polices are "block policies"
meaning all their borrowers pay the same regardless of
where they live. But all you have to do is get a quote for your
postcode and compare it.
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