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How to choose a mortgage
Most homebuyers know how important it is to choose the right mortgage deal. It is, after all, a long-term financial commitment and is likely to represent a major monthly expense for years to come.
So, where do you start when navigating the mortgage market? Here at Know Your Money, we like to make things as simple as possible and our mortgage comparison table will help you to understand various lender’s mortgage products at a glance. You can then click through on the products that look right for you for more information and to apply.
We’ve also put together a quick guide on mortgages, below, to help get you started on your journey to finding the perfect mortgage product for your requirements.
The main types of mortgage
Let’s start with fixed rate mortgages. These are mortgages that come with a fixed interest rate for a set period of time. When that initial term is up, the interest rate usually reverts to the lenders’ standard variable rate.
Variable rate mortgages, on the other hand, come with an interest rate that can fluctuate, usually in line with the base interest rate set by the Bank of England. Tracker mortgages are variable rate mortgages that follow at a certain percentage over the base rate.
To choose between a fixed rate and a variable rate, you’ll need to ask yourself some questions:
- Do I want to know exactly what my mortgage will cost me each month?
- Do I mind if my repayments fluctuate without warning?
- Do I want to take advantage of potential drops in the base interest rate?
- Am I willing to re-mortgage after my fixed rate period expires?
Other ways in which mortgages differ
As well as choosing between a fixed rate mortgage and a variable rate mortgage, there are other mortgage features to be aware of.
- Loan-to-value: When choosing a mortgage, one of the most important deciding factors will be the loan-to-value (LTV) available with certain products and providers. You need to ensure that you can meet the cost of the home you want to buy with your deposit plus the mortgage. For example, if you want to buy a home worth £200,000 and have a £20,000 deposit, it’s no good applying for a mortgage that only offers a 70 per cent loan-to-value. Instead, you’ll need to find a lender who will offer you 90 per cent LTV. LTV can also make an impact to the interest rate you are charged.
- Repayment or interest-only mortgages: Interest-only mortgages allow borrowers to repay only the interest owed each month, rather than repaying the actual amount borrowed. This means that you will still owe the full amount borrowed at the end of the mortgage term.
- Offset mortgages: These are mortgages that work alongside a savings or current account. The interest owed on the mortgage is offset against the credit balance in your other accounts.
- Fees and penalties: When comparing mortgages, it’s important to factor in any fees charged for arranging the mortgage or making overpayments. You should also factor in other potential costs such as penalties for late payment or repaying the entire loan early. If you do this before the deal you have chosen is up, you may be charged quite heftily.
- Payment holidays: Some mortgage providers may offer a temporary agreement with the mortgage holder to pause or reduce payments on request, providing you meet certain criteria.
Choosing a mortgage FAQs
How do I work out the cost of a mortgage
The cost of your mortgage will depend on several factors, from how much you borrow and how long your mortgage term is, to the interest rate you are paying and whether you can afford to make overpayments. But in addition, any mortgage provider must provide you with the full cost of the mortgage before you proceed to an application.
Can I get a mortgage for a buy-to-let property?
Many providers offer dedicated buy-to-let mortgages. These usually come with some extra lending criteria, certain limits and may offer lower LTVs than standard residential mortgages.
How much can I borrow?
This will depend on a number of factors, including your income, your employment status, the value of your deposit and your credit rating.
Can I get a bad credit mortgage?
Mortgages are difficult to come by for those who have a poor credit history, or problems like criminal records or bankruptcy in their past. However, it may be possible to obtain a mortgage though a specialist lender or with the help of a guarantor, for example.
I am a first-time buyer, can I get a mortgage?
You should be able to get a mortgage as a first-time buyer providing you have a deposit and a steady income. Lenders with take your financial situation into account, but many will have dedicated first-time buyer mortgages, which may offer higher LTVs and allow you to fix your rate for a number of years to help you plan your future finances and make the first step onto the property ladder a little less daunting.
Should I remortgage?
Many people choose to remortgage once their initial fixed-rate period expires, or if their home has increased in value. This can save you money when you find the right mortgage deal and meet the lending criteria. It’s important to check whether re-mortgaging could lead to early repayments fees or other penalties before you commit.