Top tips to help you bag the best mortgage deal.
When I tell people that I write about mortgages for a living they usually do one of two things. Either make a sharp exit (who can blame them? It's not the sexiest topic) or they ask me which is the best mortgage on the market at the moment.
And I always tell them there is no such thing as the best mortgage. It depends on your need, circumstances and preferences.
It sounds like an evasive answer but there truly isn't one best mortgage rate. The cheapest two-year fix for example will not suit those who want a variable deal, nor will it be available to borrowers with a small deposit. Equally it won't be quite right for someone who wants to lock into a rate for a longer period.
Everyone has to find the best deal for their own circumstances. For many there will only be a limited number of deals available to them, either because of the size of their deposit, their income or the amount of upfront cash they can put towards paying arrangement fees.
And then there are your preferences -- fixed, tracker, capped, flexible, offset? Perhaps you don't know.
It's important to get it right. Whatever your circumstances, picking the right mortgage can save you thousands and thousands of pounds.
The six tips below will help you to find a mortgage that is right for you.
1. Fixed rates vs variable rates
This simple question is one of the most important and there is no right choice between a fixed and a variable rate mortgage. It depends on your affordability, your attitude to risk and what you think will happen to interest rates (if you have a view).
With a fixed rate, you know what your repayments will be for an agreed term, no matter what happens to Base Rate. This security is invaluable for those on a tight budget who could not afford rates to rise.
By contrast, with a variable rate, your mortgage rate moves up and down in line with interest rates.
Variable rates such as trackers are currently priced cheaper than fixed rates, but with interest rates at a record low, there is huge potential for rate increases. In other words, it's only worth taking a cheap variable rate mortgage now if you can afford higher repayments in the future.
2. Choose between interest-only and repayment
The vast majority of borrowers choose a repayment mortgage nowadays, but lenders do still offer interest-only deals, albeit under more stringent lending criteria than in the past.
With a repayment mortgage, your monthly repayments are comprised of your interest to the lender and part of the capital debt. Over time you chip away at the capital debt until you have fully repaid it at the end of the mortgage term. If you continue to make your payments on time and in full your mortgage is guaranteed to be paid off, and it is this peace of mind that makes repayment deals appeal to most borrowers.
With an interest-only deal your monthly repayment is simply the interest on the loan. So, at the end of the term you still owe your lender the exact amount you originally borrowed. This has some advantages -- it keeps your monthly repayments low and affordable. But you must have a plan of how you will repay the mortgage debt at the end of the term. This could require paying into a separate investment vehicle such as an endowment or ISA that will hopefully grow sufficiently to repay the debt at the end of 25 years. But there are no guarantees and you could be left with a shortfall if your investment doesn't perform.
Interest-only mortgages are inherently more risky than repayment deals. However, they do suit some borrowers, such as buy-to-let landlords and those with a second home, who can sell the property at the end of the term and use the proceeds to repay some or all of the capital debt.
3. Shop around
It sounds obvious but so many people simply take the deal offered to them by their current account provider, or from the lender based on their local high street. This may be suitable, but with hundreds of mortgages on the market the chances are that there will be a better product on offer somewhere.
A good starting point is to use an online comparison service such as lovemoney.com's innovative new mortgage tool which searches the market for you based on your specific needs and circumstances, and comes up with a list of those deals that are best suited. You can also get more detailed information on the deals you are interested in, allowing you to do your research without traipsing up and down the high street, or spending hours on the phone.
Remember: getting the best mortgage for your circumstances could save you hundreds of pounds a year, and thousands over the lifetime of the deal. So do shop around.
4. Total cost
When comparing mortgages it's really important to work out the total cost of the mortgage over a set period.
If you want a two-year fixed rate for example you should work out exactly what that deal will cost you over the two years. And this means looking at both the interest rate, which determines your monthly repayments, as well as the arrangement fee, a one-off charge when you start your mortgage.
Arrangement fees can range from zero to £2,500 or even higher, and can really skew the cost of your loan. So a fantastic low rate might be offset by a high fee that makes the mortgage expensive in terms of total cost. On the other hand a rate that doesn't look too appealing can actually work out to be a great deal - if it comes with a low fee that makes the mortgage cheap in terms of total cost.
You always need to take both rate and fee into account when comparing deals. This makes it a bit more tricky to compare mortgages but if you use the lovemoney.com mortgage tool it does the hard work for you, showing the total cost of all deals over your preferred period.
5. Get advice
Finally there is one failsafe way to find the right mortgage for your needs and that is to get professional independent mortgage advice. A mortgage broker, like the expert lovemoney.com advisers can search the market for you, trawling through deals to shortlist those that suit your needs. They can explain which suit you best and help you choose the right one for you.
Plus mortgage brokers are all regulated by the Financial Services Authority to give advice and fully qualified. So they know mortgages inside out.
6. Get help from lovemoney.com
If you need more help and information about how to get the best mortgage, use our resources.
First, adopt this goal: Cut the cost of your mortgage and pay it off early
Next, watch this video: Getting through the mortgage maze
Then, why not have a wander over to Q&A and ask other lovemoney.com members for hints and tips about what worked best for them?
And finally, remember to use lovemoney.com's innovative new mortgage tool to find the best mortgage for you online.
At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 4045 or email mortgages@lovemoney.com for more help.
This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.