Buying a house is one of the most expensive purchases that we make in our lifetime, so choosing the right mortgage is crucial. However, with thousands of different mortgages out there it can be quite daunting to decide, so Moneyfacts.co.uk has compiled 10 top tips for helping you choose a mortgage.
1. Shop around
Mortgage advisers will be able to help you look at your own financial circumstances and tailor a suitable product accordingly. But before you book an appointment, search for a mortgage with the help of our Mortgage Best Buys to give yourself a much better idea of what sort of rate and mortgage deal you should be aiming at.
When choosing a mortgage, you should always look at the fees attached to the product. Some of the lowest rates available can come with hefty fees, so you'll need to calculate exactly how much you will be paying.
3. How will you pay?
Think about how you plan to pay all of the associated costs with the mortgage. Some mortgage lenders will ask for the set-up fees upfront, while others will add them into the cost of your loan, which will mean you're charged interest on them for the life of the mortgage. You therefore need to decide what the most suitable option is for your circumstances.
Many mortgage deals will tie you in for an agreed amount of time, which means that if you exit the deal early you will be hit with a redemption penalty. Make sure you are aware of how long you are tied in for, and think about how your circumstances may change over the period. Early redemption penalties can be very high, and you don't want to incur any more charges than you have to.
5. Exit fees
Once your initial mortgage deal ends, you need to check to see what fees you will be charged if you want to change to another lender. Some lenders will fix the exit fee at the outset, while others will charge what they want at the time of the exit.
Depending on your circumstances, you may suit a mortgage that allows you to overpay, underpay or take payment holidays. You can then fit your mortgage payments to suit your needs.
7. Higher lending charge
If you want to borrow a high percentage of the property's value, then you need to be aware of higher lending charges. These are not as common as they used to be but can be payable for mortgages of over 75% loan-to-value (LTV). The higher the LTV, the more the higher lending charge could be – and some can be as high as 9.5%! It's worth checking to see if your chosen provider makes this charge, as doing your homework could save you thousands.
Some mortgage products will include incentives such as a free valuation, free legal fees, or even a cash rebate on completion. However, it's important that these freebies don't fool you, as they are often worked into the total cost of your deal. Calculate how much these incentives will affect the overall costs, because what you see may not be what you get.
It's crucial that you work out how much you want to borrow, and how much you can physically afford. Remember that you will have to pay council tax, utility bills and insurances, not to mention the TV licence! Under no circumstances should you agree to a loan that you will not be able to or struggle to repay. The Mortgage Market Review has made this less likely – lenders will scrutinise your budget to make sure you're not a default risk – but you'll still want to be confident that you can afford it.
10. Ease of application
Last but not least, when you have found the right mortgage for you, make sure you look at the application form before signing on the dotted line. Beware that some online applications take a long time to complete, so pick which method you feel most comfortable with – after all, you may be tied to the mortgage for a long time.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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