10 Helpful Tips & Things To Consider When Choosing a Mortgage
When buying a property, the majority of people require a loan to help pay for it. This type of loan is called a mortgage and is likely to be the most significant financial commitment you ever make. The loan is something that the applicant will pay back, with interest over time.
With thousands of products to choose from, selecting the right mortgage can be overwhelming, which is why we have written this guide to help you navigate through the mortgage minefield. Below you will find our top 10 considerations when choosing the right mortgage for your circumstances.
1. Research/Compare the Market
Entering into a mortgage is a huge financial commitment, so it’s important not to rush. Make sure you take the time to compare offers and check the whole market available to you.
A great place to start is an independent price comparison website, a mortgage broker or your bank or building society.
2.Find Out How Much You Can Borrow!
Typically the lender will offer the applicant(s) 4-5 times their annual salary, if making a joint application, income is combined and an offer is made accordingly. Each lender has unique lending criteria based on several factors, such as income, expenditure, any existing finance or outstanding credit commitments, and the applicant’s credit score/history.
3. Make Sure Your Deposit is Ready to Go
When applying for a mortgage the lender requires the applicant to put a lump sum towards the initial payment of the property, which is called a deposit. Deposits are commonly debited around the time of completion and are something they need to see proof of before any mortgage offer is issued.
Lenders may produce an ‘Agreement in Principle’ which is a statement detailing the amount of money they are prepared to lend the applicant, based on the initial information provided. Deposits start at 5-10% of the purchase price of the property.
It’s advisable to produce as much deposit as possible as this will increase your chances of approval, and in some cases, reduce the interest rate of the loan. .
4. Choosing Between Repayment or Interest Only
There are two ways of paying back your mortgage, the first is known as Repayment, which is where you make the house payment plus the interest incurred all at once each month. The second is known as Interest Only, which is where you pay the interest first and once that is settled you then make the repayments for the house. Interest-only will take longer but the payments can be significantly less, whereas full repayments may be higher. A benefit of making a full repayment is that you will be mortgage-free much quicker.
5. Using a Mortgage Broker
A mortgage broker is the “middle-man” between the applicant and the lender, ensuring the process runs smoothly and making sure the applicant(s) understands and is in the best financial position for loan acceptance. The process involves going through all finances with a fine tooth-comb to confirm that the product is suitable and affordable. Although a broker is optional it can be hugely beneficial, especially to those who are first time buyers, those that are self-employed, those with credit issues or any applicants who have inconsistent, or complicated income streams.
6. Explore Government Schemes
There are lots of government schemes and incentives when it comes to buying a home, especially for first-time buyers, look into any that may be available to you, such as Right to Buy, Help to Buy, Shared Ownership etc. Incentives like this are likely to save you a lot of money and help you onto or move up the property ladder.
7. The Difference Between Fixed & Variable Rate Mortgages
Fixed-rate is when the rate and repayments remain the same for the agreed term, which is normally between 3-5 years. This is an ideal option for those who like their payments and interest rate to remain the same. A “variable rate” is interchangeable based on the market and the interest rates at the time. This means that your repayments could be higher in some months and less in others.
8. Be Cautious of Fees, Charges and Penalties
Mortgages are expensive, and applying for them can be a costly process, as most come with product fees, arrangement fees, searches, valuations etc. Some lenders charge additional fees that might be hidden in the small print. Ensure you’re fully away of fees you are expected to pay, and also any circumstances in which you will have to pay a penalty fee. Penalty fees are common when switching deals, lenders or paying your mortgage off early.
9 Don’t Over-Stretch Yourself
It is easy to become starry-eyed when house-hunting, but it is important to remain calm, keep a level head, and only take out a mortgage that is financially comfortable for you. Income insurance can be a way to protect your repayments in the event of loss of income or change in circumstances, but it is something you should get financial advice on.
10 Check New Deals When Remortgaging
Over time your financial circumstances, income and interest rates will change, so it’s sensible to remortgage at the end of each term to make sure you are getting the best possible deal at that time.
If you used a broker you can arrange for them to contact you when it’s time to begin the renewal or remortgage process. Beware of renewing without checking your deal. Allowing it to renew automatically means you run the risk of dropping to your lender’s standard variable rate, which can be much higher.
We hope our tips are useful in deciding how to go about securing the best mortgage product for you. Good luck!