Arranging a mortgage can be a complicated business, whether you are buying a new home, raising additional funds, or simply trying to get a better deal than your existing mortgage. At Bright Loans, we aim to simplify this procedure for you by enabling you to compare mortgages and find the best deals. Here is a guide to help you know what to look for when you compare mortgages.
The most important thing for you to look at is the interest rate. This will tell you how much you will need to pay back per month if you take a particular mortgage. This will probably be the first thing you look at when comparing mortgages as you don’t want to end up paying more than you have to for your mortgage. However, there are other factors to take into consideration too.
Mortgage fees can sometimes run into hundreds of pounds. A mortgage company will sometimes make money by charging high set up fees and a lower monthly interest rate. Be warned, if the interest rate looks too good to be true then it might well be.
It is worth doing your homework when it comes to fees because even with a hefty fee, this type of mortgage can work out cheaper overall and some lenders will allow you to add the fee on to the mortgage amount. Do your calculations before you decide if it is worth paying higher fees or not.
Some mortgage companies will charge substantial fees if you want to come out of the deal early. For example, if you want to shop around for a better rate or if you have the money to pay the mortgage off before the end of the term. If you think you will want to end the deal early, then compare early repayment fees as well as the monthly interest rate.
Mortgage deals can often be flexible and allow you to over and under pay them. Most lenders will allow you to pay an extra 10% off your mortgage without penalty but many charge you if you want to pay more than this. Bear this in mind if you expect to come into some money such as a large annual bonus that you could use to pay off more than 10% of the mortgage as this could be expensive.
Some lenders will allow you to make under payments if you have made overpayments or even take payment holidays if times get hard. You may not think you need this facility now, but it could be a welcome relief to know that you have some breathing space if you lost your job or your circumstances change. Think about whether it is worth paying a slightly higher interest rate for this peace of mind.
A fixed rate mortgage will stay the same regardless as to whether interest rates go up or down. This will give you peace of mind as you will know exactly how much you will have to pay each month, and this will not go up if interest rates rise. However, you will not benefit from a reduction if interest rates go down.
A variable rate mortgage will decrease if interest rates go down so you will benefit from this at the time. However, if interest rates rise then your monthly payment will also increase.
A variable rate can often work out cheaper than a fixed rate and with either one, you are taking a gamble on the direction of interest rates in the future. Think about what is most important to you when looking at a mortgage comparison.
The Loan to Value (LTV) ratio means how much the property is worth in comparison to your mortgage. The lower the percentage you want to borrow against the property, the better the interest rate will be as the lender is taking less of a risk. With a low LTV they stand a much better chance of getting their money back if you can’t keep up the repayments on your mortgage and they need to repossess your home.
Working out the LTV is easy when you are buying a home as you work out your buying price against your mortgage amount. It can be harder to calculate this when you are remortgaging, however, as you will not know the sale price. A lender will usually carry out a valuation on the property but if their estimate is different to yours, it can affect the interest rate they will be willing to offer you.
A good way to work out the value of a property for remortgage is to look at a site such as Rightmove to see what similar homes in your area are selling for.
It is worth checking your credit history with companies such as Experian or Equifax before you compare mortgages. If your credit history is good, then lenders are usually happy to lend to you. However, if you have a history of missed payments or CCJ’s, this will mean that some lenders won’t be able to lend to you.
Your credit history can make a big difference to the interest rate you will be offered and if you have a good credit history you are likely to be offered far more favourable rates than if your credit history is not so good. Don’t assume that you will naturally be offered a rate if it comes up on a mortgages comparison table. It may be that you will have to opt for the best rate offered rather than the best rate available in the market.
Consider these factors when comparing mortgages and you will be able to narrow down the options that are available to you. Remember, the headline interest rate may by no means be the deal that will suit you the best.