Whether you’re a first-time buyer or already a homeowner, choosing the right mortgage product for you is important. It could save you money as well as ensuring your mortgage fits your life plans.
However, with hundreds of mortgage products to choose from and an array of lenders, how do you know which is right for you? Paul Grennan, Principal Mortgage & Equity Release Adviser at Pembroke Financial Services, has seven questions can help narrow down your search.
1. Do you want a repayment or interest-only mortgage?
The first decision you need to make is the type of mortgage you want.
Paul explains: “With a repayment mortgage, your monthly outgoings will be higher as you’ll be reducing the value of the loan as well as paying the interest. Assuming you stick to the repayments, you’d own your home outright at the end of the mortgage term.
“In contrast, an interest-only mortgage only services the accrued interest. This means repayments will be lower, but you’ll still owe the full amount borrowed at the end of the term.”
Repayment mortgages are more popular in the UK – between 2012 and 2019, the number of interest-only mortgages fell by 54%, according to UK Finance. However, there are circumstances where an interest-only mortgage can be useful, if you’d like to discuss if an interest-only mortgage is right for you, get in touch.
1. How long do you want to pay the mortgage over?
Paul continues: “Traditionally, homeowners would pay a mortgage over 25 years. However, as property prices have increased, mortgage terms have become longer. The mortgage term will usually need to end before you reach State Pension Age.
“The shorter the mortgage term, the less you’ll pay in interest overall, but the higher your monthly outgoings will be.”
Even when you’re remortgaging or moving home, you can change the length of term if you wish. In some cases, you may also want to extend your mortgage term. For example, doing this if you’re moving to a more expensive home can make outgoings more affordable.
2. Should you choose a fixed-, tracker- or variable-rate mortgage?
This decision will dictate how the interest you pay is calculated. What’s right for you will depend on your priorities.
A fixed-rate mortgage’s interest rate will remain the same for a defined period, usually two, three or five years. This is useful if you want to know what your outgoings will be over the medium term.
A tracker-rate mortgage follows the Bank of England’s base rate, currently 0.1%. This means your interest payments could rise and fall. Your interest rate will usually be the base rate plus a defined amount, for example, base rate + 2.5%.
A variable-rate mortgage works similarly to a tracker-rate mortgage. However, rather than following the Bank of England’s base rate, it will follow the rate set by your lender. Again, this means the amount of interest you pay can rise and fall.
3. What is the interest rate?
“Once you’ve decided between the fixed, tracker and variable options, it’s important to compare similar mortgage deals in terms of the interest rate offered. Interest rates are currently low but there is still competition within the market, so shopping around for the best deal could save you thousands of pounds,” Paul added.
Remember: some mortgage lenders don’t have a high street presence and there are specialist providers that could be right for you. With such a large market, searching different lenders and understanding their criteria can be time-consuming. We’re here to help you find a lender that matches your needs and offers a competitive interest rate.
4. Are there any fees?
Some mortgages will come with an arrangement fee or other charge that should be considered. But you shouldn’t discount them immediately in favour of those without fees. While mortgage fees mean an upfront cost, if the interest rate is lower, they can save you money over the term of the mortgage.
5. Do you want the flexibility to overpay?
Overpaying your mortgage can save money by reducing the amount of interest you pay. Whether you want to make a one-off lump sum or regular overpayments, it’s important to be aware of potential charges.
Usually, you can pay up to 10% of the outstanding balance each year without facing additional fees. However, this isn’t always the case and you should check if overpaying is something you plan to do.
6. Do you have plans to move home?
If you plan to move in the next few years, you should keep this in mind when searching for a deal. You could opt for a shorter deal that coincides with moving plans or you can select a mortgage that will allow you to port it to a different home. Be aware that porting a mortgage could come with some restrictions.
Finding the right mortgage provider for you
We know that searching for a mortgage can take time and you may have questions about which option is right for you. We’re here to lend a hand throughout the process, whether you’re a first-time buyer or nearing the end of your mortgage, and to help you save money.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.