Seven Stupendous Mortgage Deals

Here's our Magnificent Seven of mortgages to help you make a Foolish choice on your next mortgage deal.

This article was originally sent to Fools as a standalone email in our 'The Good, The Bad and The Ugly' email series. 

In part four of our series on 'The Good, The Bad and The Ugly' in the world of personal finance, I'm going to look at mortgages.

Choosing the right mortgage from the thousands of different deals available to you is a bit like trying to follow a very dull and complicated university lecture. You know there's something of value in there somewhere, but you just haven't got the patience to pay attention until you find it.

For this reason, many borrowers give up and just go for whatever deal is at the top of the best buy tables. But this is very un-Foolish (note the capital F!).

The fact is, there's no such thing as "the best mortgage deal". It will always vary according to your individual financial needs and circumstances.

That's why when I was asked to look at the top deals available, I sorted them not only by rate, but by what kind of borrower they would be most suitable for.

The Most Competitive Deal

If all you're interested in is getting the most competitive deal, you should consider going for a discount or a tracker. This is because interest rates, which have already been cut by 0.5% this year, are expected to keep on falling and that means your monthly payments should get smaller if you go for this type of deal.

If you have a good credit rating and a 10% deposit, I'd recommend one of the following deals with relatively small fees. (Personally I'd go for the tracker over the discount: read Beware The Discount Mortgage Trap to find out why!)

Source: The Motley Fool Mortgage Service

On A Tight Budget

Before you decide on a deal, you should always check how much your monthly payments will be using a mortgage calculator. If you are worried you would not be able to afford the repayments if the rate suddenly went up, you should consider opting for a fixed rate. This means your monthly payments will be fixed at a set level, so will not increase if the Bank of England puts interest rates up.

You should then consider how long you need the security of a fixed rate for. You could potentially fix for five years or longer but be aware if you want to remortgage during this period, you'll usually pay heavy penalties. And always check whether a long-term deal is "portable": this means you can move home and keep the same mortgage.

Source: The Motley Fool Mortgage Service

Small Deposit

If you have less than a 10% deposit, watch out for deals with Higher Lending Charges. These can add thousands of pounds in fees to an otherwise competitive deal. And if you have less than a 5% deposit, deals are currently so uncompetitive that you may find you are better off waiting and saving up.

For example, Bradford & Bingley is only prepared to lend 100% of the property price at a rate of 6.89%, with a £999 fee. If you're a professional such as a lawyer or an accountant, however, you may be able to find a cheaper 100% deal.

However, in today's uncertain property market, the risks of falling into negative equity (when you owe more on your mortgage than your home is worth) are much greater than in previous years so, if it were me, I would wait and save instead.

Large Deposit

If you fall into the lucky category of a borrower with a 20% deposit, then you should be able to snap up a cheap, bargain rate.

For example, First Direct is currently offering an extremely attractive two-year fixed rate to borrowers with a 20% deposit. It comes a higher-than-usual fee (£1,498) but the rate is extremely low, at just 4.75%!

Straightforward And Flexible

If your priority is to get a straightforward and flexible deal, then you might do well to consider a deal that allows you to overpay with no early repayment charges (so you can remortgage at any time without paying any penalties) and offset your savings (allowing you to pay off your mortgage quicker and save thousands of pounds in interest payments).

The downside is, these deals often come at a higher interest rate. For example, Scottish Widows is offering a tracker with these features at 0.49% over the Base Rate (so currently 5.74%).

The deal lasts for the entire length of the mortgage term, so you never need to remortgage, and you only pay early repayment charges if you pay off the entire mortgage in your first year after that no charges apply. There is no upfront arrangement fee and the valuation fee is also refunded.

But don't go looking for this on the high street - this is an exclusive deal with The Motley Fool Mortgage Service! And unfortunately, the lender has plans to withdraw it from the market tomorrow (although an alternative version with a slightly higher rate should be available after that).

And that brings me nicely to my final point. While these deals will hopefully give you a good idea of the kind of competitive deals on offer in the mortgage market and may help you to decide which type might suit your needs best, personally, I don't think there's any substitute to chatting through your options with a broker.

Whether you choose a fee-free whole-of-market broker such as The Motley Fool, or your local broker offering a face-to-face service down the road, you should benefit from their knowledge and expertise when choosing a deal! Even if you know what deal you want, it's very reassuring and takes all the hassle out of what can be quite a stressful process.

Right, lecture over! Congratulations on sticking with me to the end with any luck, you'll soon have a first-class mortgage to show for it!

Find A Magnificent Mortgage With Our Mortgage Service.