Choosing a mortgage can be tough. There are so many options out there that it’s easy to get overwhelmed. Not all mortgages will be suitable for your needs, so it’s important to work out exactly what type of mortgage you require and what you are eligible for. Below are just a few tips on how to shop for the best mortgage deal.
Assess your financial situation
Start by taking a hard look at your finances. What’s your budget? How stable is your income? And what’s your credit score like? All of this will affect which mortgages you can apply for, as well as the repayments and interest rates you can expect to pay.
Use online mortgage calculators to estimate monthly payments based on loan amount, terms (usually 15 to 30 years) and interest rates. Don’t forget additional costs like taxes, insurance and maintenance.
If you’re self-employed or have an irregular income, you might need to look into more specialist lenders who offer more flexibility.
Explore the main types of mortgages
Mortgages come in a few different forms. The most common ones include:
- Fixed rate mortgages: These have a fixed interest rate for the entire term. Such mortgages offer predictable monthly payments and worth taking out when interest rates are low.
- Adjustable rate mortgages: These mortgages have a variable interest rate that adjusts based on market conditions. During periods of high interest rates, such mortgages could be a good deal as rates could fall over time, but there is also a risk they could increase. Many adjustable rate mortgages will have a low fixed interest rate for the first 5 years, before switching to an adjustable rate.
- Interest only mortgages: With these loans, you just pay off the interest for the first few years – often in very small monthly payments. After this, you then pay off the property in large installments. A good option for those who want to save money initially while settling in and renovating.
- Government backed mortgages: There are government back mortgages available for those on low incomes or within certain age ranges. These may have lower down payments, lower interest rates or longer terms than standard mortgages. In some cases, the government may even pay part of the mortgage off for you. Shared ownership (part rent, part buy) is one example of a government backed mortgage.
Home or investment property?
If you’re planning on renting out a property to tenants, you’ll need to look into specialist buy-to-let mortgages. For a house in multiple occupation, HMO property finance may be necessary.
You usually cannot rent out a property to tenants on a regular home-buying mortgage. That said, some lenders will be flexible to the idea of lodgers, provided that you notify your lender beforehand.
Key factors to consider
Ultimately there are a few elements that you need to weigh up to help you narrow down the right mortgage.
- Loan term: How long will you be paying off the loan? This will affect your monthly installment amount.
- Down payment: How much do you have to pay upfront? A larger deposit could mean small monthly repayments.
- Interest rates and APR: Different lenders will charge different interest rates.
- Fees and closing costs: Look into extra fees like arrangement fees, booking fees, valuation fees and early repayment fees.
- Eligibility: Do you have to be a certain age to apply? Do you need a certain income or a certain credit score rating?
Mortgage brokers may be able to help you find a suitable loan and may even be able to get you access to exclusive deals. All in all, don’t just try to go with the first lender that accepts you.
