mlm-editorial, 3 months ago3 min read
Mortgage rates can vary depending on a number of factors: the lender, your credit score, the type of loan you require, the size of your deposit and the duration of the loan (and any fixed deal periods). With all these factors in mind, doing your research is critical to ensuring you receive the best deal possible. This guide will help you to discover the right mortgage deal for you in three easy steps.
A repayment mortgage will require you to pay back both the interest on your mortgage and some of the loan itself. By the end of your mortgage term, you will have paid off your mortgage completely and will own your property outright.
With an interest-only mortgage, you will only pay back the interest on your loan, leaving you with much lower monthly payments. At the end of the mortgage term, you’ll still need to pay off the balance of your loan. Interest-only mortgages will only be offered when there is a credible payment plan for what is left to pay off.
In a fixed rate mortgage, your payments are fixed for the duration of the deal. This incentive period can last for two to fifteen years, after which time you will go onto the lender’s standard variable rate (SVR). If the SVR is too high, it is possible to remortgage to a more affordable rate with a new lender.
Variable rate mortgages ensure that you can change your mortgage rate, but they also mean that the amount you need to pay could change month to month. These mortgages fall into three categories: standard variable rates (SVRs), trackers and discounts.
Standard variable rate
Every lender in the UK sets their own SVR, which can be changed whenever they like to account for inflation — although generally, they follow the Bank of England’s rate movements. SVRs can also vary between lenders, so as always, it’s worth shopping around. With an SVR, there is no way of knowing when or by how much the lender will increase their rates. This means that your mortgage payments could change each month, going up or down.
With a tracker mortgage, the rate moves in line with the Bank of England’s base rate. This is a popular type of mortgage because you have the reassurance that your rate will only move with economic change. However, you will be locked in, which could result in high costs in the future if interest rates jump.
Discount rate mortgages
A discount rate mortgage will offer a reduced rate from the lender’s SVR. These discounts tend to last for around two to three years, but some lenders may offer a lifetime option. This has sometimes been the cheapest option, but be aware that there is no guarantee that your lender will put their rates down in line with the Bank of England base rate.
It’s important to look far and wide to find the best mortgage deal for you, which could mean looking further afield than the bank where you have your current account.
Depending on the size of your mortgage and the value of the property you want to buy, you are likely to require at least a 10% deposit.
Use price comparison tools like Money Supermarket, U Switch or Compare The Market to find out what rates you can get. But remember, some lenders do not appear on comparison sites: Yorkshire Bank and First Direct are an example of this. Create a spreadsheet to log the details so that you can remember the deals that are available to you. Compare fees, interest rates and monthly payments to see what is best for you.
This is a great exercise to learn what is out there, as well as familiarising yourself with the mortgage and financial jargon that exists. Wide reading will always help you to understand an unfamiliar topic better.
Once you have compiled your mortgage research, use MyLocalMortgage to find a mortgage advisor that is local to your area.
Once your broker has found deals, compare them against your own research. Which ones are better?
A mortgage advisor, or broker, will assess the market to discover whether or not the deals you have identified can be beaten. Seeing an advisor is a great way to speed up the research process, as well as giving you an advantage to help your acceptance. Mortgage advisors are best placed to help you with government buying schemes like Help to Buy loans or shared ownership.
Seek recommendations from friends and family to find the perfect fit for you. You should aim to find one who will check all lenders for your perfect mortgage, and to speak to an advisor who is fully qualified to advise you. Similarly, find out how they make their money: is it through commission from a lender, or from a fee from you?
Mortgage advice: how to find a cheap mortgage
So whether you’re a first time buyer or are looking for a buy-to-let mortgage, doing your research to assess the market is key. Using a mortgage broker or advisor is a great way to find the best deals out there — just remember that you should always use your own research as a baseline for comparison.
Find your perfect mortgage advisor today at MyLocalMortgage.