How To Get A Cheaper Mortgage
Definition of a mortgage
A mortgage is a name given to a loan that is used to buy a home or piece of land where the loan is secured against the property being purchased. Mortgages are typically long-term loans with repayments stretched over terms up to 35 years.
Finding the best mortgage rate allows you to keep monthly costs down - the difference of paying a competitive mortgage rate versus one that is not can run into thousands of pounds over the term of the mortgage.
What are mortgage rates?
Mortgage rates refer to the interest rate that a mortgage lender charges (bank or building society). The lender charges interest as recompense for the money that they loan you to help you buy or refinance your property.
The underlying benchmark for UK lenders is the rate that is set by the Bank of England. The Bank of England (BOE) base rate at the time of writing is at an all time low of 0.1%. This is effectively the rate of interest banks can borrow from the BOE.
Individual banks and building societies then determine what mortgage products they can offer and the rates that will apply to borrowers.
Mortgage rates are typically offered on a fixed or variable basis.
So you need help finding the best mortgage rate deal?
The best mortgage offer is not solely determined by interest rates. You must examine the mortgage term’s suitability for you.
Factors that affect suitability include; how much of a deposit you can put down, or how much equity you have in your existing home to use to contribute towards a new purchase or remortgage. The loan to value (LTV) is an important determinant in what rates will be on offer to you. Early repayment charges on the mortgage - is this an issue for you? Product fees - Lenders often will charge a product fee which can be usually added to the loan, but again from lender to lender this can differ. The ability to overpay on your mortgage may be important to you - some lenders offer this facility. Lenders may also on certain products free valuation and legal fees as well as cashback offers. If you have had previous blips with your borrowing, the mortgage products available to you may be limited.
Because the best mortgage rates in the UK can fluctuate on a regular basis if you are looking for a good deal we believe whilst rate tables can be helpful in getting an idea of what is available it is prudent to speak to an independent mortgage broker to find what deals are right for your circumstances.
If you want to explore your mortgage options, it is a good idea to speak to an independent mortgage broker who will be able to offer impartial advice.
With mortgage tables you will typically find a selection of rates offered by UK lenders where the deal is ranked on initial rate. Different types of mortgage product include:
Fixed-rate mortgages
- You’ll know how much your monthly repayments will be for a fixed initial term
- Mortgage repayments won’t increase even if the Bank of England’s base rate rises.
A fixed-rate mortgage normally has an initial deal length of between two and five years (although this can be extended; a growing number of 10-year fixed-rate mortgage offers are available).
Variable and tracker rate mortgages
- These rates will typically fluctuate in line with a lenders internal variable rate.
- The monthly payment you make may go higher or down depending on the overall state of the economy.
- Typically if interest rates go down or up your mortgage will fluctuate in line with these changes
Variable and tracker rate mortgages typically often have lower interest rates than fixed-rate mortgages, at least at the time the mortgage is taken out, and can thus be less expensive in the long run. However, they offer far less security because the interest rates are not guaranteed.
You may also want to consider a variable-rate mortgage if you’re prepared to deal with the possibility of a rise in your monthly mortgage payments and have enough flexibility to do so.
Offset mortgages
- Using your savings account to pay down your mortgage is a great way to save money.
- It is common for offset mortgage rates to be a little higher than those for standard mortgages.
- Your mortgage savings account will not accrue interest.
- You may have to pay a penalty if you want to take your money out of your mortgage early.
Using an offset mortgage, you can utilize your savings to lower your monthly mortgage payments by ‘offsetting’ it against your mortgage balance, which reduces your interest payments.
Is it time for me to speak with a mortgage broker?
By working with a mortgage broker, you not only save time and effort but also have access to intermediary rates that are not available directly to the general public.
Mortgage alternatives can differ depending on what you’re aiming to accomplish.
- Looking to move house and move your current mortgage - some mortgage lenders do allow you to port your deal to a new property, so it may be worth considering that as an option as well
- Purchasing your first house - as a first time buyer some lenders will offer 1st time buyer mortgage rates up to 95% LTV and will often add incentives such as cash-back rewards, no valuation and no or low legal fees.
- Remortgage - looking to get a better rate or don't want to pay a higher rate as your current mortgage deal is coming to an end. You may also be looking to raise additional capital through remortgaging
It’s worth noting that if you’re considering remortgaging before the end of your term, you should first examine the conditions of your present mortgage. This is because your existing mortgage provider may impose an early repayment charge (ERC) before allowing you to switch to another contract. This may be worthwhile, though, if it results in a large reduction in your mortgage payments.
What method do you intend to use to pay off your mortgage?
- Repayment mortgages
Repayment mortgages are meant to ensure that, after the term, you’ll have paid off the whole amount of the loan plus interest and will have no future obligation to pay. Using a mortgage calculator, you’ll be able to figure out how much you’ll have to pay each month, and you can be assured that you’ll be able to pay it all off at the end of the term.
By making overpayments on your mortgage loan, you may be able to reduce the amount of interest you pay as well as shorten your loan term.
- Interest-only mortgages
Because you’re not repaying the balance of the loan or building your equity, your repayments are lower with this sort of mortgage. However, if your property improves in value throughout this time, then your equity will also increase; You need to ensure you have a robust plan to pay off the mortgage when the lending term ends. Some lenders are comfortable if you are looking to sell your home as a strategy as long as you have a minimum level of equity in the property e.g. 40%
How long is a mortgage term supposed to be?
Having a shorter mortgage term will save you money in the long run because you’ll pay less interest for the term.
Long-term mortgages can lower monthly payments, but they may end up costing you more in the long run because of the interest they accrue over time.
Mortgage calculators
A mortgage calculator helps you see how much you're supposed to pay back monthly
How to get a good rate on a mortgage
- Check out your credit score
As part of the mortgage application process, your chosen lender will conduct a credit check on you and any co-borrowers. If your credit score is insufficient, you will not only be denied the mortgage but your credit rating will be further decreased, perhaps making it more difficult to obtain a mortgage from another provider.
- Make provision for additional expenses.
Remember to factor in additional expenses as well, such as relocation charges, stamp duty, and, of course, upfront mortgage and valuation fees.
Once again, it’s all about paying close attention to the specifics, not just of the house itself, but also of the mortgage you’re considering. While you may have located the lowest mortgage rates, as mentioned above there are other factors to consider.
