How to select a mortgage that’s right for you from thousands of options
December 21, 2024
Category: News
The number of mortgage options available is at its highest level in 16 years, data from Moneyfacts reveals. While more choice is a good thing when you’re searching for a new mortgage, it might feel overwhelming too.
In May 2024, there were more than 6,500 different mortgages available – the highest number since February 2008.
So, how do you whittle down the options and find a mortgage that’s right for you? Here’s a useful list of considerations that could help you focus on the mortgages that suit your needs.
Calculate what your loan-to-value ratio is
Understanding your loan-to-value (LTV) ratio could help you exclude a large number of mortgage options that don’t suit your needs quickly.
The LTV compares the amount of money being borrowed against the market price of your home. So, as a first-time buyer putting down a 10% deposit, your LTV would be 90%. As you make repayments and reduce the outstanding mortgage balance or the value of your home rises, your LTV will fall.
Typically, the lower the LTV, the more competitive the interest rate you’ll be offered as you pose less of a risk to the lender. As a result, getting an up-to-date valuation of your property could save you money.
Decide which type of mortgage is right for you
There’s more than one type of mortgage. By deciding which type best suits your needs, you can remove those that are unsuitable. There are two key questions to consider.
1. Do you want a repayment or an interest-only mortgage?
A repayment mortgage is the most common type of mortgage. With this option, you’d pay the accrued interest each month and a portion of the outstanding debt. Assuming you keep up with the repayments, you’d own your home outright at the end of the mortgage term.
As the name suggests, you only pay the accrued interest when you have an interest-only mortgage. As a result, your regular outgoings will be lower, so it may be a useful option if you need to manage your budget. However, at the end of the mortgage term, you’ll still owe the initial amount you borrowed.
2. Do you want a fixed-, variable-, or tracker-rate mortgage?
How the interest on your mortgage is calculated will affect your repayments, so it’s an important area to consider.
With a fixed-rate mortgage, the interest rate and your repayment will remain fixed for a set period, such as two or five years. If the Bank of England’s (BoE) base rate rises, you may benefit as your outgoings wouldn’t increase. However, if the base rate fell, you could find you’re paying a higher rate than comparable deals.
A fixed-rate mortgage may make it easier to budget and might be right for homeowners who want the certainty of knowing how much their expenses will be each month.
A variable-rate mortgage means your repayments could change depending on your lender’s interest rate. If the rate falls, so too will your repayments. On the other hand, if rates increase, your monthly repayments will rise as well.
A tracker-rate mortgage is similar to a variable-rate mortgage but would follow the BoE’s base rate rather than your lender’s.
If you believe interest rates will fall, a variable- or tracker-rate mortgage could be valuable. However, you may also want to consider how a rate rise would affect your budget.
Set out mortgage features that are important to you
Depending on your circumstances, there might be some mortgage features that are a priority. Some features you may want to consider are:
- The early repayment charge if you plan to make overpayments
- The mortgage arrangement fee if you’d like to reduce your outgoings now
- The option to port your mortgage if you may move home during the mortgage term.
Setting out key features you’d like in a mortgage now could eliminate options that aren’t appropriate for you.
Review the interest rates different lenders offer
Now you’ve whittled down the mortgage options to ones that suit your needs, you might want to review the different interest rates on offer.
Even a small reduction in the interest rate you pay could have a large effect on your repayments and the cost of borrowing over the full mortgage term.
Let’s say you’re looking for a £200,000 repayment mortgage with a 20-year term. With an interest rate of:
- 3.5% your monthly repayment would be £1,160 and the interest over the mortgage term would add up to £78,459
- 5.5% your monthly repayment would be £1,376 and the interest over the mortgage term would add up to £130,166.
Source: MoneySavingExpert
As the above figures show, shopping around for a lower interest rate could save you thousands of pounds.
While you can apply for a mortgage directly with some lenders, a mortgage adviser may be able to help you secure a more competitive deal.
A mortgage adviser can search through the deals on your behalf
If you’re overwhelmed by the number of mortgages available or you aren’t sure which option would be right for you, a mortgage adviser can offer guidance. We can work with you to understand your needs to identify a lender that’s more likely to approve your application and offer support throughout the process.
If you’d like to talk to one of our team, please contact us.
Please note:
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
| YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE. |
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