Top nine tips on getting mortgages

Getting mortgages is (thankfully) not something that homeowners have to do every day. If you are looking for a new home loan, you may wish to bear the following nine tips in mind.

1. Know your credit score. In challenging economic times, you may find that lenders may have tightened up their lending criteria for granting mortgages. Accordingly, you may wish to check that your credit history file is all correct and up to date, so that you have an idea about where you stand when applying for a new home loan.
2. Look beyond the newspaper or internet rate. Interest rates for home loans that are stated in marketing materials may be for guidance purposes only. Do not assume that those are the rates that are available for you, as the lender may tailor the rates they offer according to your individual financial circumstances.
3. Decide on the term that you want to borrow for. How quickly do you want to pay off your mortgage? If you want to pay off your mortgage in a short period of time, you may find that the repayments may be higher than they would be had you spread the loan over a longer period of time. However, a longer term typically means that you pay more interest over all, which you may wish to bear in mind for the purposes of comparison.
4. Know how much it may cost. You can find mortgage calculators online that can help you get a feel for how much you may be able to afford and how much repayments will be etc.
5. Decide between repayment or interest only. Paying only the interest on a mortgage may sound great – until you consider that the balance is still outstanding that needs to be repaid at some point. Repayment mortgages may mean that you can chip away at the outstanding capital gradually as you go as well as pay the interest, whereas interest only home loans mean that you must not forget to make some kind of provision to repay the capital!
6. Swot up on interest rates. Do you know your standard variables from your capped trackers? Looking into the different types of mortgages available may be a worthwhile exercise.
7. Are you planning to get a fixed rate mortgage? If so, what do you plan to do after that fixed term has ended? Think about whether you plan to remortgage or whether you could continue to pay the mortgage on the variable rate the loan would typically revert to.
8. Consider the worst case scenario about interest rates. On a similar vein to the top tip above and depending on the mortgage type you are considering, you may wish to think about whether you could afford your mortgage if rates went up considerably.
9. Finally, are you looking at mortgages that have penalties for early redemption? If so you may wish to consider what it would cost you to remortgage to another deal.

Comparing Mortgages

Financial services are often confusing for the layman, made all the worse by the fact that the stakes can often be high; if you don’t know exactly what you’re getting into, most people believe it’s easy to make mistakes that could cost them thousands of pounds. The worst offender for striking fear into the hearts of potential homebuyers is the mortgage. How does it work? What’s the difference between a fixed-rate mortgage and a variable one? Are there any other options? After all, this is likely to be the biggest loan you ever take out – it’s hardly surprising that many people get a little nervous about the whole situation.

However, it doesn’t have to be this way. Mortgages are not all that confusing and – while they are certainly important – you don’t have to feel as though they’re completely unintelligible.

Generally speaking, mortgages come in two (sometimes three) forms: fixed-rate, variable, and capped:

• Variable mortgages fluctuate along with the interest rates as set by the Bank of England, and as such are not entirely dependable – you could well end up paying out a different amount one year (higher or lower) than you do the next. However, it’s entirely possible by this logic that you could end up saving money on your mortgage if the interest rate drops; as such, it’s a very popular choice.
• The alternative to a variable mortgage is to go fixed-rate. This means that your mortgage provider will give you a set interest rate at which you pay back your mortgage for a couple of years at a time, after which the rate may change. Despite this, it’s still a lot less likely to fluctuate than a variable mortgage, which has several advantages: firstly, you know down to the penny how much you have to pay towards your house every month, meaning that you can budget a lot more effectively; and secondly, you can save money if the interest rate rises above the level at which your rate is fixed. However, there are some downsides; it’s likely that your mortgage provider will charge you a fee for this service, which you’ll likely have to pay up front, and you could end up paying more than you have to should the Bank of England base rate drop below the rate you’re currently paying.
• A third, but much rarer, alternative is the capped mortgage. This offers you the best of both worlds; while it’s variable with the Bank of England’s interest rate, your mortgage provider will ensure that there is a fixed highest interest rate you can pay, in effect meaning that you’re never wholly susceptible to the whims of the marketplace. While this sounds great in theory, there’s often a large fee to pay upfront that makes this unsuitable for many borrowers.

While there are more complicated mortgage packages available (especially for those who are self-employed, or have poor credit ratings), the choice generally comes down to either fixed-rate or variable. To find out which might be better for you, consider talking to a mortgage advisor or other professional, and make sure you know what you’re signing up for before you put your name (and a large chunk of money) on the line.