How to compare mortgages

Welcome to our guide on how to compare mortgages, find the best deal and what you should avoid.

In this article we will explain the main jargon when looking at different mortgage types and the small print so you can ensure the mortgage meets your current needs and is compatible with your future plans. Knowing how to compare mortgages will help you to understand how to choose the best deal.

 

Interest rates types

There are 3 main types of interest rate:

Fixed Rate – This rate won’t change for the fixed period and at the end with change back to the lenders standard variable rate. This type of rate is usually higher.

The advantages of a fix rate are:

  • The rate won’t change for the period.
  • Great for budgeting if you are on a fixed income.
  • If you think rates are going to increase this could save you money.

The disadvantages of a fix rate are:

  • If you think rates are going to reduce you could end up paying more.
  • They tend to be a little more expensive that variable rates.

 

Variable Rate – This rate can go up and down in-line with the lenders standard variable rate or the Bank of England base rate. It is more commonly sold as a tracker rate or discount rate.

The advantages of a variable rate are:

  • You could save money if you think interest rates are going to come down.
  • They are generally cheaper than fixed rates
  • They can have lower set up fee’s

The disadvantages of a variable rate are:

  • If you think rates are going to reduce you could end up paying more.
  • They tend to be a little more expensive that variable rates.

 

SVR

Also known as standard variable rate. This is the flat rate that mortgage lenders charge after the special fixed or tracker rate has ended. It is a variable rate, so it will increase and decrease. Generally it is the mortgage lenders highest rate and could be linked to the banks own lending rate or the Bank of England base rate.

The advantages of a standard variable rate are:

  • The set up fees are low
  • You can make over payments
  • You can leave the lender at anytime

The disadvantages of a standard variable rate are:

  • Expensive
  • The rates can increase

 

Interest only or repayment?

Once you have chosen your rate you need to choose how to repayment your loan. A repayment mortgage is made up to interest and capital, so each month you pay off some of the mortgage loan and at the end of the term it will be paid. Most mortgages are taken on this basis. Interest only mortgage is just the interest part of the mortgage, so each month you just pay interest but the loan never reduces.

 

Initial rate

This is the rate that you are charged during the initial period of your mortgage. This could be a fixed rate of 1.99% for 5 years. This initial rate is 1.99% and after the 5 years the rate would revert to standard variable rate.

 

Fees

Here is a list of the typical fees to look out for:

Valuation fee – This is the fee a mortgage lender charges to see if the property is suitable for them to lend on. You shouldn’t rely on this and should consider a home buyers report for this.

Home Buyers Report – This is a survey instructed by the buyer of a property to find out everything that is wrong with the property.

Booking Fee

 

APRC

APRC stands for Annual Percentage Rate of Charge. Mortgage loans will show details of the APRC on the quote and mortgage offer. This is the true total cost of borrowing if you take a mortgage out and keep it for the whole term of the loan. It takes into account interest charged and all fees paid.

 

What is a tie in period?

This is the amount of time that you will need to stay with a mortgage lender. If you choose to leave the lender during this time they will charge you a penalty to leave. This could be a set monetary amount or a percentage of the loan. The tie in period usually matches the initial rate term.

 

ERC’s

Early Redemption Charge is a fee the lender will charge you if you want to pay off your mortgage before the tie in period. This is usually linked to a special rate like a fixed rate or tracker rate. The agreed date is usually while the rate is reduced or fixed. After the special rate ends the mortgage will revert to standard variable rate and ERC’s won’t apply.

 

Flexible or not?

Some mortgages will allow you to make over payments without a penalty. If you are considering making over payments on your mortgages make sure the product that you choose will allow this. Some lenders will allow you to make over payments on their standard products by up to 10% per year.

 

How interest is charged

Mortgage lenders can charge interest in different ways. Typically yearly, monthly or daily. If you are considering overpaying on your mortgage then daily interest could save you even more money.

 

Looking for mortgage advice? speak to one of our mortgage advisers on 0330 4004242 or ask us a question

 

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP THE REPAYMENTS ON YOUR MORTGAGE.

2019-02-11T13:13:43+00:00February 11th, 2019|