It’s likely to be your single biggest outgoing every month, so there’s every reason to make sure your mortgage is as cost-effective as it can be. However, there’s no one-size-fits-all solution: the full cost of your mortgage often comes down to a combination of things you can’t change (the current rate of interest, the value of your home) and things you can (your credit score, savings and, of course, the deal you choose).
Your options when choosing a mortgage
The mortgage market is incredibly competitive and it can be hard to understand what exactly is on offer.
From the many different providers to the extensive range of products and rates available it is extremely important to carefully study your options before making a decision. Choose a few options – speak to a number of independent mortgage advice services as well as your bank or building society.
Under new rules introduced in April 2014, lenders and brokers must offer advice by recommending the most suitable mortgage for you.
They’ll assess the level of mortgage repayments you can afford, by taking into account your income as well as your debt repayments and various outgoings.
Although lenders and brokers must offer advice in almost all cases, you might be able choose to reject the advice and find your own mortgage deal based on your own research. If you choose your own mortgage without advice it’s called an “execution-only” application.
Get Your Paperwork In Order
Gather your financial information together before you talk to lenders or brokers. This handy Mortgage Paperwork Checklist will guide you through.
Getting advice rather than on an execution-only basis means that, if for some reason the mortgage turns out to be unsuitable for you later on, you’ll have more rights when you make a complaint.
For example, you could make a complaint of financial mis-selling if the advice you were given turned out to be unsuitable for you. Without the advice, you will have to take full responsibility for your mortgage decision making.
If you don’t take advice you could end up with the wrong mortgage for your situation, which would be a costly mistake in the long run, being rejected by your chosen lender because you didn’t understand the restrictions clearly or what circumstances the mortgage was designed for.
Speak to your bank or building society
This is a good starting point, as they know you and your financial situation.
They’ll tell you about their own mortgages, so do see how their products stack up against the competition before making a final choice. Their advice is typically free.
Consult a mortgage adviser
A mortgage adviser, also known as an independent mortgage broker, is a specialist with in-depth knowledge of the market.
They’re able to look at a range of mortgage products which suit your needs. Some look at deals from a limited list of lenders, others are tied to a specific lender, and there are those who will check the whole market for a wide range of products.
Even ‘whole of market’ advisers don’t cover everything. They can’t advise you on mortgages that are only available if you go to the lender directly.
Mortgage brokers might charge you for their service depending on the product you choose or the value of the mortgage. Others will be free to you but they’ll receive commission from the lender.
They should tell you up front how much you will pay for their services. You should also be told if an adviser is paid commission. Once your broker makes a product recommendation they must give you a document called a Key Facts Illustration.
All mortgage advisers must offer you advice when recommending the most suitable mortgage for you. This means you are protected and you can complain to the Financial Ombudsman if things go wrong.
Questions to ask your broker
Are you whole of market? A ‘wide range’ of mortgages is not ‘whole of market’. Make sure the adviser gives you the correct information about the service they offer.
Do you charge a fee? Some advisers charge no fees and make their money from mortgage lender commission. Fee-charging advisers will be paid commission too and may share this with you by giving you cash back. Ask them if they receive commission too.
Are you regulated? You should only go to a qualified mortgage adviser regulated by the Financial Conduct Authority (FCA). You can check your broker on the FCA register.
Other reasons to use an adviser
– They’ll help you take all the costs and features of the mortgage into account, beyond the interest rate
– They may have exclusive deals with lenders, not otherwise available
– They’ll check your finances to make sure you can afford a mortgage
– They should only recommend a mortgage that is suitable for you and will tell you which ones you are likely to get
– They often complete the paperwork for you, so your application should be dealt with faster
Comparison websites are a good starting point if you’re trying to find a mortgage tailored to your needs.
Comparison websites won’t all give you the same results, so make sure you use more than one site before making a decision.
It is also important to do some research into the type of product and features you need before making a purchase or changing supplier. It’s important to not just look for the lowest interest rate when choosing a mortgage. There are other factors, which also contribute to the whole amount you pay back over time.
Look out for
APR (Annual Percentage Rate) takes initial fees into account as well as the interest rate and expresses it as a percentage. Since not all fees and terms are taken into consideration, the mortgage APR is just a guide rather than a true representation of the cost.
Deposit size. The higher the deposit, the lower the interest rate you are likely to get.
Length of fixed or variable rate deal. Do you want to be locked in for a long period or have more flexibility? There will be charges if you switch out of a deal before it ends.
The fees. You need to work out the total cost of a mortgage deal to make a true comparison.
The standard rate – which your mortgage will switch to once your fixed rate deal ends.
Flexibility. Can you overpay your mortgage without being charged and can you take a break from making payments?
How often is interest charged? Will it be paid daily, monthly or annually? Daily interest works out cheaper.