categoryTeam Sprive

Repaying my mortgage early | Jinesh Vohra - Part 1

Our founder and CEO, Jinesh Vohra, recently had the pleasure of talking to Sam Abrika on the Nova Money Mindset podcast. He talks about his personal journey having paid off his mortgage and how his experience led him to build Sprive.

You can listen to the full podcast here and we’ve also made an edited down version of the interview available for you to read. Here is part 1 of the interview.

Hi Jinesh! Why are you helping others become debt free?

I paid off my mortgage and my life has completely changed because of it, so I'm just passionate about helping other people do the same.

How did you afford your first house?

So I actually lived at home until the age of 28, so I was able to save a lot of money and not pay rent. I worked in London and my family lived there too, so for me it made no sense for me to move out. When I got married my wife and I decided we wanted to buy our first home, so we started looking around and used the savings we had accumulated since we had started work and we bought a first property with a 25% deposit.

How did you get your mortgage?

We knew we had to borrow over £300,000, so we started to talk to mortgage brokers. I asked some friends and family if they had an advisor that they would recommended. Through those conversations, I quite quickly got a sense of what was the best deal I could get. However, I decided to go directly to the lender as I wasn’t keen on paying advisory fees to a mortgage advisor.

Why didn’t you use a comparison site?

Comparison sites show you a lot of deals, but they don’t necessarily tell you what deals you are eligible for. They typically don’t look at your affordability, they don’t provide advice and you have to submit all the paperwork yourself. When you’re buying your first property, you want to be looked after and so I would find solely relying on a comparison site to secure your first mortgage tough.

How was your experience getting your mortgage?

I remember sitting down with an advisor, and him asking a lot of personal questions and writing them down on a price of paper. I was little taken back to how my data was being managed. We spoke to a few different brokers, but I struggled to determine whether the deal I was being recommended was actually the cheapest. You have to essentially rely on the broker and take it on blind faith.

When I went to the lender, I had to book an appointment in branch and answer a lot of questions. It was a very cumbersome process and I recall thinking in this day and age doesn’t it really need to take this long. With the technology available today, there is a lot of scope to make getting a mortgage more efficient.

Why do you think it's still such a painful process today to apply for a mortgage?

Each lender has their own way of determining whether an individual can afford the mortgage and the likelihood of them being unable to pay their monthly payments. The systems at many banks are 20+ years old and they’ve felt that they’ve not needed to invest heavily in improving the consumer journey. With new digital players entering the market, we’re starting to see things change. Lenders are now investing in better integration and automation, so I expect the experience to improve over time.

What are the steps to be approved for a mortgage?

First step is to understand how much of a deposit you can afford, and how much you need to borrow to purchase the property you would like to live in. This helps determine your loan to value, which is a key data point to determine what deals you can potentially get. The larger the deposit you can put down, the cheaper mortgage deal you’re likely to acquire.

The lender will then look at your credit commitments, look at your regular outgoings, your income and look out for any red flags such as adverse credit or a history of gambling. They want to get a sense of whether you can afford the mortgage and the likelihood of you not being able pay the set monthly payments.

How much do lenders take into consideration your credit score?

First of all your loan to value will get you a clear idea of what your monthly payments will be. So if you have a stable income and there is a good gap between the amount you need to pay on your monthly mortgage payments versus the income that is coming in, then your credit score doesn’t matter as much. It becomes very clear to the lender you can afford the property.

Your credit score is much more important, when things are more tighter in terms of your ability to demonstrate that you can afford to repay the mortgage. If that the case, then they will likely take a lot more closer look at your credit history. If you can show a history of being able to take on debt and pay it off then that will result in you having a good credit score and give the lender confidence that your past history shows that you will likely meet the monthly mortgage payments. However, if you have adverse credit history, history of bankruptcy, not paying debts on time, then that’s going to reduce the likelihood of you being able to secure that mortgage.

Do you have any tips to negotiate a better rate with the lender?

If you want to pay less interest, you need to put down a bigger deposit. But it’s a balance, as when you buy a home there are other things to consider such as having to pay stamp duty, additional fees and then cost to renovate / furnish your home. You also want to make sure you have enough emergency cash set aside too. The last year has been a good example with Covid. Many people unfortunately lost their jobs or experienced prolonged periods where they were earning no income.

You can also look at whether you want a fixed or variable mortgage. You tend to pay a higher premium for having a fixed mortgage, than a variable mortgage.

How do fixed and variable mortgages work? What do you recommend?

It really depends on an individual’s circumstances. A fixed mortgage allows you to pay a fixed interest rate over a certain period. That essentially means that during that period your monthly payments will remain the same. This can give you a lot more confidence, especially if you’re someone who likes to budget and you don’t want the amount of debt you’re required to pay to be unpredictable. In addition, if you think interest rates are going to go up, then you may want to protect yourself from that situation.

However, typically fixed mortgages can have more restrictions compared to variable mortgages that makes it difficult to exit early should you need to. With variable mortgages, you’re paying a lower interest rate, but if interest rate do rise, then your monthly payments will rise. You need to be careful with a variable mortgage, as you still need to make sure you can afford incremental increases in your monthly payments.

My steer is to sit down with a regulated financial advisor if you’re not sure and go through the options. When I had a mortgage, I personally preferred getting a variable mortgage because I liked the flexibility, the ability to shop around every few years and because I aware that my personal situation could change over time.