How to compare mortgages products
Comparing mortgage products is a crucial step in the home-buying process, and it's important to look beyond just the interest rate.
A Mortgage Advisor (hello 👋) will be on hand to help you navigate this complex landscape. Your home may be repossessed if you do not keep up repayments on your mortgage.
The following information will give you the low-down on how to compare mortgage products and which key factor to evaluate. Let’s jump straight into it:
Interest rate and Annual Percentage Rate of Change (APRC):
The interest rate is a major factor, but it's not the only one.
The APRC provides a more comprehensive view of the total annual cost of the mortgage, as it includes the interest rate, fees, and other charges.
A lower interest rate might be offset by high fees, making the overall deal more expensive.
Sounds complex - but we’ll figure this out for you when the time arises and help you make an informed decision.
Mortgage type:
There are several types of mortgages, each with different features and risks:
Fixed-rate mortgage:
The interest rate remains the same for a set period (e.g., 2, 5, or 10 years). This offers predictable monthly payments, which is great for budgeting, but you won't benefit if market rates fall.
Variable-rate mortgage:
The interest rate can change. This includes:
Tracker mortgages: The rate follows an external benchmark, such as the Bank of England base rate, plus a set percentage. Your payments will rise or fall with the benchmark.
Standard Variable Rate (SVR): This is the default rate a lender places you on after your initial deal ends. It's set by the lender and is often higher than other rates.
Fees and Charges:
Look at all the fees associated with the mortgage, such as arrangement fees, booking fees, and valuation fees.
Sometimes a higher interest rate with low or no fees can be a better deal than a low interest rate with high fees, especially for smaller mortgage amounts.
Early Repayment Charges (ERCs):
These are penalties for paying off your mortgage early or overpaying more than the allowed limit.
Most mortgages have a limit on how much you can overpay each year without incurring a penalty (often around 10% of the mortgage balance).
Loan-to-Value (LTV):
This is the ratio of the loan amount to the property's value. A lower LTV (meaning you have a larger deposit) generally gives you access to more competitive interest rates and a wider range of products.
Mortgage term:
This is the length of time you have to repay the mortgage. A longer term will result in lower monthly payments but will mean you pay more in interest over the life of the loan.
Looking for guidance to secure the right mortgage product?
A good mortgage advisor can be extremely helpful for several reasons:
Market expertise:
Mortgage advisors have an in-depth understanding of the mortgage market, including different lenders' policies and lending criteria. They can quickly find suitable products that you might not be able to find on your own. This is particularly useful if you have a non-standard financial situation or a less-than-perfect credit history.
Access to exclusive deals:
Some mortgage deals are only available through brokers and not directly to the public. An advisor can help you access these exclusive products, which may offer more competitive rates.
Personalised advice:
A good advisor will assess your individual financial situation, including your income, debts, and spending habits, to determine how much you can realistically afford to borrow. They will explain the different mortgage types and help you choose the one that best suits your needs and risk tolerance.
Streamlining the process:
They can help you with the paperwork and act as an intermediary between you and the lender. This can make the application process much smoother and increase your chances of getting approved.
Ongoing support:
You should receive guidance throughout the entire home-buying process, from the initial application to completion if you’ve chosen a quality Mortgage Advisor. They can also advise you on future steps, such as remortgaging when your current deal is about to end.
Consumer protection:
When you receive regulated mortgage advice, the advisor is obligated to recommend a product that is appropriate for your needs. If the mortgage turns out to be unsuitable for any reason, you have grounds to make a complaint. We’re an appointed representative of HL Partnership Limited which is authorised and regulated by the Financial Conduct Authority.
