The situation is compounded when you are sourcing a suitable mortgage overseas, whether you are simply working for an extended period abroad, purchasing a vacation home overseas or have retired out of country.
The principles of selecting the “best” or most appropriate mortgage remain the same as back home; do your research, seek professional advice as early as possible and make sure you understand what you are signing before you commit yourself.
Here are our 5 tips for finding a suitable mortgage overseas:
Research! Research! Research!
This cannot be stressed enough and many people end up doing far to little homework, and only uncover very expensive errors when it is to late - after they have completed on the property purchase. Performing research is essential to educate yourself on the different customs and terminology which is used by the overseas lenders and property professionals, and this will help you avoid some of the pitfalls involved in property purchase.
Seeking professional advice at the earliest stage possible is an excellent way of going forward. You will have the benefit of someone who knows and understands the market, while they can provide you with advice and appropriate recommendations which are suitable to your personal situation. This can help you to concentrate only on those lenders and mortgage products which are suitable for you and your intended property purchase.
Three Basic Rules
Mortgage brokers apply three fundamental rules and you are strongly advised to follow them when selecting a lender to make an application.
1. Ensure the lender will lend on the type of property you are looking to buy – some lenders will not lend on apartments, others will only lend on brick or block construction while still others will only lend in a certain geographical area.
2. Ensure the lender will lend to you – everyone is different, with differing incomes, deposit available and looking for differing mortgage conditions. Some lenders will not lend to you because you are an expat, others will lend to you but conditional on a minimum deposit being available, which they will set, while others will welcome you with open arms. Make sure you meet the criteria the lender may have before you submit any application to them.
3. Ensure the mortgage product will suit your personal needs – ensure the mortgage deal fits your requirements and this means considering interest rates types (fixed, discount, variable, ARM); early redemption penalties; repayment terms available; interest only or capital & repayment (amortized); customer service. This is not an exhaustive list.
Choose a Mortgage Which is “Appropriate” for You
Once you have a shortlist of mortgage products to consider, you must eventually choose a lender and product to make an application to. Submitting multiple mortgage applications is expensive and frowned upon by lenders, so in practice, you are restricted to making just one application at a time.
We have outlined some of the factors in part (3) of the Basic Rules above, but it is worthwhile expounding on this because it is important. It is extraordinarily difficult to compare one mortgage to another, and you really need a professional who can explain how one product will work and how it compares to another. Many people, and brokers, are seeking the “best” mortgage deal but in practical terms there is no such thing – what is best for one person is not necessarily the best for you – it is far better to think in terms of how appropriate each mortgage is for you given your unique, personal circumstances.
Do Not Be Misled By “Headline” Interest Rates
Many lenders will promote their mortgage products using the headline interest rate, but this rarely provides a true picture of how much the mortgage is going to actually cost you. Frequently, a headline rate is only an introductory offer which will expire after a period of time – some lenders even offer 0%, but only for a very short period of time, though a discount for a year or two is more common. You must consider what will happen when you are being charged the full interest rate after any introductory offer has expired.
What Are the Other Costs?
There are numerous other costs which need to be considered and not just the interest rate. Here are just a few examples of costs to ask about before you commit yourself:
1. What property insurances are required and are you restricted to a captive insurer of the lender or are you free to shop around?
2. Is life insurance a condition of the mortgage being approved and if so, on what terms?
3. What application fees are involved in submitting the mortgage application and how much, if any, will be refunded if the application is unsuccessful?
4. Are there any fees or costs associated with the property itself such as management or homeowner association fees?
5. What are the funds transmission fees upon completion of the contract or any other “documentation”, “handling” or “management” fees levied by the lender or its agents during the application and legal process?
Always Ask Questions!
Never be afraid to ask questions about any aspect of the transaction and application!
The most important questions are usually the ones which are never asked, whilst improving your knowledge will help with controlling worry and stress.
Never accept an answer which you do not understand; your professional advisers are there to provide you with the ability to understand what is happening. You must understand the nature of the mortgage and the property transaction well enough to make an informed decision about what is in your best financial interest. Unless you are a mortgage professional, you will not be able to do this without asking a lot of questions and getting answers you understand.
