10 things mortgage borrowers should never forget

Here's a checklist of ten points that you should look into before signing on the dotted line.

Monthly mortgage payments is one of the biggest items of expenditure we have. It's particularly important to choose your mortgage correctly to avoid getting trapped in the wrong mortgage and overpaying by hundreds or even thousands of pounds.

With that in mind, here are ten items to check when you're looking for your next mortgage deal:

1. Don’t rely on short-term forecasts

You can't just say: a two-year tracker has the lowest rate, therefore it's better than a ten-year fixed deal. Long deals have other advantages, and so do fixed rate deals.

Many borrowers agonise over which they think will turn out better, but there is little point; most of us are abominable forecasters, seeing patterns that don't exist. It’s best to use other ways to choose between different types of mortgages.

From my own exclusive research I have found that a typical good variable or tracker rate over the past few decades has been at the base rate or below. That is a good price for risky mortgages such as these, since they can move up and down.

A mediocre variable deal offers a rate that is around one percentage point to 1.5 percentage points above the base rate. Anything higher has historically been expensive for a variable rate.

Currently, the best variable rates – not the average ones – are around 1.5 percentage points above the base rate, meaning variable deals are not cheap. This reflects the fact that the base rate is low, and forecasted to remain that way in the short term.

Short-term forecasts are exactly the kind of thing you should discount when choosing a mortgage deal.

To compare the apples – variable deals – with the pears – fixed deals, you should value fixes not against the base rate but against average historical fixed rates. Over the past 15 years or so, the best rate you could have got by moving from the best fixed deal to the other, as and when they expire, was around 5%.

Anyone averaging 5% over that period with fixed deals should get an award. I estimate that the average person will have got around 6.5% when you average all the fixed rates they paid over that period. Over the past 35 years, our award winner would just have managed 8%.

Hence, fixes – the cheapest, longer ones at least – currently look good, at around 4%-5%. I show you more on comparing apples and pears, and explain who might still find variable mortgages suitable, in How to pick the right remortgage deal. I also explain some more about why some deals are worth paying more for in The property market's worst-case scenario.

2. The monthly payment must be affordable

First and foremost you need to be able to afford the monthly mortgage payments.

If you're contemplating a variable mortgage at the moment, you need to consider the possibility that rates will rise quickly, and ensure you can afford the higher monthly costs. You can read more about that in The property market's worst-case scenario.

3. Watch out for low rates with high fees

Most mortgages have an introductory deal lasting at least two years. Get an estimate of the total cost of the deal from your lender or broker, including all fees, legal costs and charges, plus the total interest. This makes the mortgage easier to compare with others.

4. Remember to factor in exit fees

You're probably going to switch mortgage again at some stage, and probably just as the introductory deal expires. Hence, you should add the exit fee to the total cost of the deal.

5. Consider how much flexibility you need

If you think you might have to leave the mortgage before the deal expires, look for how much that will cost you. Usually the penalties – typically called “early-repayment charges” – are very large, so you'd usually be better off avoiding this risk.

6. Avoid extended early-repayment charges

If you're planning to switch after the introductory deal has expired, you usually don't expect to pay early repayment charges. However, on rare occasions mortgages include these hefty fees for years after your introductory deal expires. You should try to avoid these mortgages.

7. Bear in mind the monthly cost after the deal expires

Rather than just the monthly cost during the introductory deal, for some people the monthly cost afterwards is important. This might be if you think you'll be unable to remortgage again, perhaps because your circumstances will worsen, or because your mortgage will be too small by the end of the deal.

8. Check whether you can make overpayments

Many of you might be interested in overpaying. Even modest overpayments can seriously reduce the interest you pay which normally boosts your wealth more than putting your money in savings. Look for mortgages allowing generous amounts of overpayments each year. 10% is good.

9. Find out if the mortgage is portable

If you're planning to move soon, or if you're getting a particularly long deal with early-repayment charges, you might want to know that you can move your mortgage without penalty. Check if the mortgage is portable.

However, just because a mortgage is theoretically portable it doesn't mean you'll be able to move it. Read Lenders preventing mortgage transfers.

10. Say no to pushy sales staff

If staff are putting pressure on you to take out extra products, such as insurances, you should make it clear that you just want the mortgage. Linked financial products are invariably expensive, so you should always buy them separately, if at all. If the sales staff keep pushing, consider looking elsewhere for your mortgage.

More: Compare mortgages through lovemoney.com | The £3,000 hidden cost of remortgaging | Investing versus paying off your mortgage early