Finding a great mortgage can save you hundreds in the short term, and thousands in the medium to long term.
The trick is finding the right deal, which can frankly be overwhelming. Especially if you are a first time buyer with little experience in the housing market.
In this article, we’re sharing 6 tips to help you on your journey to finding your dream home.
If you need further help or advice on finding the right mortgage for you, please get in touch.
#1 Realistically Assess Potential Rates
Your mortgage rate is the level of interest charged by your lender, as you pay off your property.
So, the lower the interest rate, the better. An interest rate of 1% beats a 2% rate, and so on.
To get truly great rates as a first time buyer (or anyone, for that matter), you will need a decent deposit compared to the value of the properties you are looking at.
For instance, if your deposit represents 40% of the house value, then you’ll get a far better rate than if your deposit were to represent 10% of a house’s value.
Regardless of your deposit, with most mortgages the idea is to pay off what you owe during the duration of the loan (usually 20-30 years).
You can sometimes get an interest-only mortgage, which usually gives you cheaper monthly repayments. However, these are increasingly rare.
You should also be careful before taking one out if you do find an interest-only deal, as you will need a repayment plan for the property when the loan expires.
Also, be careful to not just approach your bank for a new mortgage deal. They will only present their deals to you, and will neglect other, potentially better deals on the wider market.
#2 Decide On Your Preferred Mortgage Type
As touched on above, you need to decide whether you want a normal, repayment-style mortgage, or an interest-free one. (For most people, the former will be better).
In addition, you need to also consider whether you want to go for a variable rate mortgage, or a fixed-rate mortgage.
The former means that your monthly mortgage payments will likely fluctuate each month, but historically this has sometimes led to a cheaper overall repayments.
The latter provides assurance of a fixed outgoing each month for your mortgage payments.
It isn’t always easy to know which type to pick, as it depends on your goals, attitude to risk and particular financial circumstances.
Make sure you weigh your options carefully with your partner/spouse, and talk to your mortgage adviser if you have one, prior to making any big decisions.
#3 Be Aware Of Fees
Getting a mortgage isn’t just about the interest rate. There are other expenses to consider too.
To name just a handful, there are often booking charges, arrangement fees, broker fees, legal fees and valuation fees.
Put together, these kinds of fees can add an extra £2000, or even more, to your total costs.
Arrangement fees are charged by your lender for setting up your mortgage. Costs can range quite wildly, but £1000 is a common figure.
A booking / reservation fee is also often charged by your lender, to arrange the loan as your application is processed. This can cost around £100.
You get the idea. It may or may not pay significantly to be informed ahead of time in this area, but it can certainly eliminate nasty surprises down the line.
#4 Consider Your Flexibility
The most important flexibility feature you need to think about with mortgages, is overpayment.
By paying back more than what you have to each month, you can dramatically reduce the amount of time it takes to clear your mortgage debt.
This means that you will pay less interest, and therefore save more money. Sometimes, by overpaying by as little as £100 a month, you can reduce your total interest payments by tens of thousands of pounds!
Make sure you read the small print of the deal carefully, in this respect. Many lenders will put a limit on the amount you can overpay (e.g. 10% of the remaining mortgage).
#5 Speak To A Good Broker
Once you have a list of competitive deals you are interested in, then consider asking a broker if they can find an even better deal.
A good broker will be able to quickly search the wider market, using their intimate knowledge of different lenders’ criteria to narrow down on some options for you.
You can always ask family and friends for broker referrals, if they had a good, recent experience with one during a house move.
Of course, you’re aiming to find the best broker for you, at the lowest price. Just make sure you also think about the following:
● Ask them if they check all mortgage products available to mortgage brokers. Some brokers can only consider deals from particular lenders, and are not whole-of-market.
● Ask them about fees. For instance, do they charge you a fee directly, take a commission from the lender, or some combination of both? If they charge a fee, make sure it’s no higher than 1% of the mortgage value.
● Ask if they have CEMAP, or hold any other mortgage broker qualifications.
#6 Beware Of Extras
Some brokers and lenders will try and charge you for optional extras.
MPPI is a classic one (mortgage payment protection insurance). This is designed to cover your mortgage payments in the event you become seriously ill, injured or redundant, for instance.
MPPI isn’t a bad type of insurance in itself. You just need to be careful, as it can often be more expensive when sold through your lender.
If you are going to go for it, make sure you look at other deals first. Also, make sure you would how much it pays out, and for how long.