If you’re in the market for a new mortgage, you should probably take note and follow this guide. Finding the right mortgage can be an uphill struggle and if you’re not aware of the many pitfalls you can possibly pay well over the odds initially, and also, as mortgages are more or less, a lifetime commitment you could possibly be paying for mistakes over the next few decades!
What type of mortgage is best for you?
Depending on your personal circumstances, one of the very first decisions you’ll need to make is whether you want an interest-only or repayment mortgage?
Interest only mortgages are cheap as you are only servicing the debt accumulated by the interest charged on your mortgage, you’ll find the original mortgage you have taken won’t go down, but it will stay the same. Taking out an interest-only mortgage will mean that you’ll need a plan to pay your mortgage in the future.
A repayment mortgage will undoubtedly be expensive however, you will be paying your mortgage as well as servicing the interest. You will find your mortgage going down each year as you zone into paying it off, in its entireness.
The second thing you need to ask yourself is do you want a fixed or variable rate mortgage?
In recent years, fixed-rate mortgages have become very popular. With fixed-rate mortgages, you will know exactly what you need to pay every month to service your mortgage.
Variable rate mortgages can fluctuate up or down depending on what the Bank of England’s base rate of interest is doing. Generally, if the Bank of England’s base rate of interest is predicted to go down then you should in theory go for a variable rate mortgage however, if it’s already low (like now!) then you should really opt for a fixed rate mortgage and lock in the low rates for as long as you can!
Thirdly, make sure you have enough cash for fees and other associated costs. When you’re buying a house there are many costs, four of the big ones are:
- Stamp Duty: this cost is normally a certain percentage of the price of your property.
- Solicitor’s Fees: this cost is associated with all the legal requirements needed for you to purchase the property.
- Valuation Fee: this is a cost for valuing property you want to purchase, generally a prerequisite required by the lender.
- Mortgage Fee: this cost is sometimes referred to as an arrangement fee, which must be paid directly to your lender, sometimes this cost can be added to your mortgage. On some rare occasions, lenders don’t charge arrangement fees or keep them to a minimum.
How much money can you get?
This question is quite independent and is associated with the price of your property and what your income is? Normally your income will dictate how much money you can get from the lenders, as a simple rule, lenders will lend up to 5 times your annual income. If you go to your bank, they will probably offer you a mortgage, but it probably won’t be the best deal for your personal circumstances. The bank can only offer you a mortgage product from its “own range of products”. Going to the bank should be used as primary exercise to “test the waters”, you can use the information that the bank gives you and utilise it as a benchmark to compare against other products, from other lenders.
Call a Mortgage Broker?
A “Mortgage Broker” can be your best friend when buying a property, they can probably find you the best deal and hold your hand through the whole process. Normally a mortgage broker can comb through the market to find a mortgage deal tailored towards your personal circumstances, they can eliminate all the lenders that aren’t geared towards your needs and offer you products from lenders who are.
Mortgage brokers can also give your application extra credibility as they will undoubtedly vet you and your application initially, this will help if they need to fight for your case, as they will know you to a certain degree.
Mortgage Brokers can also advise you on “Help to Buy” mortgages and other Government mortgage schemes like Equity loan, ISA, Shared ownership, HOLD and OPSO to name a few. If you think you are eligible, inform your broker that’s what you’re looking for on the onset.
The wealth of knowledge that a Mortgage Broker possesses is priceless because sometimes knowing which lender is best for your needs just isn’t enough, they also have key details about lenders’ criteria. For example, a Mortgage Broker would know a specific lender who has excellent rates but, will not lend on properties above a parade of shops, or in high rise flats – so they’d be able to endorse another lender who does.
Chances are that when you look for a property an estate agent will be part of the process, and they will recommend a Mortgage Broker to you 7 times out of 10 this Mortgage Broker will be part of the estate agents company, you may elect to work with this Mortgage Broker, however, don’t be held to ransom as it is your right to work with whichever Mortgage Broker you want.
When you speak to a Mortgage Broker, don’t just go with anyone, ask the Mortgage Broker three questions:-
- Do you have access to the all the UK’s lenders and their products?
- How much are your fees?
- Are you CeMAP qualified?
The answer to the first question should be yes, they should have access to the “whole of market” or “access to all products from those accessible to brokers”. If the broker says anything different, then chances are the broker is affiliated with a specific lender or lenders, in which case they can’t offer you the absolute best deal for you and your circumstances!
For the second question, if the broker wants to charge anything above 1% of the mortgage amount, just walk away! Normally 1% is the industry standard and quite suffice, brokers know this!
The third question is a mandatory requirement for a Commercial Mortgage Broker if they aren’t CeMAP qualified they shouldn’t even be talking to you!