5 ways to make sure you get the best mortgage
Mortgage rates are at record lows at the moment and that makes it a great time to find a new home loan. But beware: high arrangement fees can mean that a mortgage which might look to be the best because it has the lowest rate of interest, actually works out to be more expensive than a deal with a higher rate.
The size of your deposit, or amount of equity you have in your home, will also have an impact on the mortgage you get as the leading deals are only available to those with quite chunky deposits. Therefore, if you only have say 10% or 15% to put down, you will pay more than if you have a deposit of 40%. That said, mortgage rates have been coming down across the board, so even regardless of what deposit you have, things are better than they were a few months ago. Here are five fantastic tips to help you grab the cheapest mortgage available to you.
Take advantage of market-leading rates
If you have a large deposit or a sizable amount of equity built up in your home, you can save thousands by switching to one of the great fixed-rate deals available at the moment.
There are a number of two-year fixed rates sub 2.00% - the lowest they’ve ever been. Five-year fixes have also fallen to an all-time low, with First Direct offering the change to lock into a rate of 2.69%.
However, First Direct requires a deposit of at least 35%, while HSBC and Chelsea, Yorkshire and Norwich & Peterborough building societies, which all have two year fixes under 2.00%, ask for a deposit of 40% or more.
Shop around for first time buyer deals
While the best deals are reserved for borrowers with large deposits, there are also some great offers for those with less cash upfront.
Market-leading deals available to those with a 10% deposit include Chelsea Building Society’s two-year fix at 3.69% with a £1,695 fee, and the Post Office’s two-year deal with a fixed rate of 3.75% and a fee of £1,495.
For graduates looking to split the cost of buying a first home with friends, there is also the Share to Buy discounted-rate mortgage at a current rate of 3.79%. It too requires only a 10% deposit, and has the advantage of having no upfront fees or early repayment penalties.
Check how fees impact the total cost
However big your deposit, low interest rates can sometimes mask the true cost of a mortgage and that is because there are also costs involved in setting up a mortgage.
Chelsea Building Society’s 1.89% two-year fix, for example, has a hefty £1,695 arrangement fee. As a result, Norwich & Peterborough’s deal which has a slightly higher rate of 1.99% actually works out cheaper over the two-year term on mortgages up to £250,000 because the fee is only £995.
To calculate the total cost of the mortgage you are interested in, multiply the monthly repayments by the number of months in the term – so 24 if it is a two-year product – and then add on the fees.
Fix your payments for added security
A fixed rate mortgage gives you protection from rising interest rates. You usually have to pay a premium for this security. However, there is very little difference between the rates on the leading fixed and variable rate products at the moment so most people are opting to lock their mortgage rate and protect themselves from possible interest rate increases.
Contact a broker if you’re unsure
A lot of people prefer to speak to someone before signing up for a mortgage as they don’t feel confident that they’ve identified the best deal – and this is something worth getting right as it could save you hundreds, if not thousands of pounds.
If you do need help, speak to an independent mortgage broker. MoneySupermarket is partnered with L&C Mortgages and you can speak to an adviser by calling 0844 776 5072.
Bear in mind, however, that some lenders such as HSBC, First Direct and Post Office don’t make their products available to brokers so it is worth checking what deals they’re offering too, which you can do on MoneySupermarket.
Every week, Clare Francis, financial journalist and editor-in-chief of comparison site moneysupermarket.com will offer tips and advice on all things money-related to help iVillagers make the most of their hard-earned cash. From energy bills to car insurance; credit cards to children’s savings accounts; mortgages to discount vouchers Clare will show you how to make sure you’re getting the best deal. For more, visit Clare Francis on Google+.