Tips for Finding the Best Mortgage Interest Rates
We know mortgages can be a lengthy commitment. They can often last 15, 20, 30 or even 40 years, so finding the best mortgage deal is essential in ensuring you aren’t overpaying. A pivotal part of this is getting the best interest rate. The longer your mortgage is, the more interest you will pay on your loan, so here we have collated some tips to ensure you get the best deal with low mortgage interest rates.
Search the Market
Often sticking with your current bank won’t get you the deal you want. Many bank lenders will only show you a small percentage of the mortgages they have to offer. With this in mind, it is important that you shop around when looking for the best mortgage deal with good interest rates. Contacting more than one lender to enquire about deals available to you and collecting and comparing different agreements will not only ensure you know you’re getting the best price but will also allow you to negotiate with various loan providers & with over 100 lenders out there, how can you ensure you’re talking to the right ones..
This needn’t be much of a hassle either. With the invention of online mortgage brokers, comparing thousands of mortgage deals is made much cheaper and easier. However, it is important to remember that online quotes are only a starting point. Real results will depend on your credit score, how much of a deposit you managed to save, the cost of the property and the type of mortgage you want to pursue.
Mortgage Brokers
If you’re really unsure, using a physical mortgage broker can also help in securing the best mortgage with low interest rates. They will search the market for you, as well as advising on any queries you have such as government schemes and what’s best for your personal situation. Mortgage brokers will also know different lender’s individual criteria. For example, some lenders will exclude giving loans to properties above shops or to self-employed customers. A broker should know which providers this applies to. It is key that you trust and feel comfortable around your broker, ask friends and family who have already moved for recommendations.
Before settling on a broker to assist with you mortgage hunt, it is important that you ask them a few questions;
- “Can you get me a mortgage from any UK lender?” – some mortgage brokers will only work for certain lenders, so be wary of this when deciding which to go with. If you want a wider range of options, pick a broker who can offer an extensive variety of mortgage providers. Those who can provide a high variation of deals are likely to be costlier, however. It is unlikely that you will find a broker who will provide every deal available nationwide.
- “Do you charge a fee?” – as previously mentioned, all brokers receive a procuration fee from the lender, which means they receive a commission for placing the mortgage. This doesn’t affect the interest rate you pay so don’t be concerned by this. It’s simply a “thank you for the business” from the lender. Fees may be added on top of this, or be charged instead of. It is important to note that this should not be more than 1% of the total mortgage value. If it is, consider looking for a different broker.
- “Are you qualified?” – to ensure the information provided is certified, you should ask the broker if they are qualified. The most recognised qualification is called a CeMAP. A sure sign of the legitimacy of a broker is whether they assess your needs and eligibility before recommending a mortgage type.
A Healthy Credit Score
Having the best credit score possible will not only ensure the best deals are presented to you throughout the decision process but will also aid in securing a mortgage in the first place. The lower your credit score, the higher the interest rates are likely to be on a loan offer, and that’s only if you qualify at all. As well as this, if your credit score is high it will allow you more in obtaining the best deal possible.
If your credit score is anywhere under 580, you’re going to struggle when applying for a mortgage. This is where building a credit score will come in. Firstly, start by getting a free credit report from one of the leading providers (such as Equifax or Experian). Ensure that your credit report is correct & reflects your current situation. Any errors need correcting as this may affect your ability to raise a mortgage. Such credit score providers will offer a free evaluation and report every 12 months, to guarantee your credit report is always up to date.
To boost your score, pay off any high interest debt. This will help to improve your debt-to-income ratio. Paying off any credit cards and any remaining loans you may have will not only improve your credit rating but will also help in saving for a deposit for your home. Also, ensure you close any credit card accounts for cards you no longer use. Leaving them open & the lender will assume you intend to borrow on them.
If you’re struggling to prove your credit to a potential lender, taking out a credit card may help. Spending money on the credit card and paying it off will demonstrate to a loan provider that you can handle debt. Having said this, do not get a credit card if you cannot pay it off in full each month – this will have an adverse effect.
Knowing What you Want
Walking into a meeting with a potential lender with a strong idea of the type of mortgage deal you want will help when negotiating for the best possible outcome. This will demonstrate that you have done your research and will help you appear more professional and reliable to the loan provider. It will also help the process to become much quicker.
Think about whether you want a repayment or interest only mortgage. If you’re opting for interest only, you’re going to need a separate plan to pay off the debt you’ll still owe, as this type of repayment plan will only cover the interest you’re paying on the loan. You’ll also be limited to the lenders offering an interest only mortgage as well as needing a minimum of 25% deposit. With a repayment mortgage, the debt is also covered in the monthly repayments. This is the most popular type of mortgage repayment.
Next, you need to consider whether you’ll settle for a fixed rate mortgage or a variable rate one. Fixed rate mortgages will have the same repayment amount for the whole agreed period. They offer more stability as you will know exactly how much you’ll need to pay each month. However, with a variable rate mortgage, such as a tracker mortgage which tracks the Bank of England’s base rate, you could end up paying less than with a fixed rate. The negative to variable mortgages is that if they base rate increases, then so will the amount of interest you pay on the mortgage. Although the base rate has been reasonably low as of late, it is estimated to increase with the imminent completion of Brexit. By how much, we are still unsure. At this time, it is probably more advisable to choose a fixed rate mortgage – these are the more common option right now.
It is also important that you know a rough estimate of how much you want to borrow, what is a good interest rate for that amount and how much the property is worth. This will come with doing research on the different deals. It will also depend on your loan-to-value. The amount of deposit you saved with affect the amount of loan you borrow. For example, if you saved 20% of the asking price of the property, you will be borrowing 80%.
The greater your deposit or equity, the lower the interest rate is going to be on the loan. A 95% loan-to-value mortgage will have a hefty interest rate compared to a 40% mortgage. Using an online mortgage calculator can help to determine how much you can afford to borrow at what interest rate and how long the repayment period will be. Shorter loan periods will also reduce the amount of interest you are paying overall – again helped with how much of a deposit you can save.
Consider the Fees
When looking for the best mortgage loan, it is sometimes worth thinking about more than just the interest rates. Almost all lenders will charge some sort of fee for the transaction. These may come in the form of valuation costs & mortgage fees. Whilst some providers will allow the fees to the included in the overall cost of the loan (meaning you can pay the fees whilst you repay the loan), some do not offer this. Again, this is why it’s important to do research before committing to a mortgage deal.
Do not be afraid to ask the lender how much their fees are and how they want them paid. If they seem too high, check the market for a more reasonable price. Also consider whether high fees are worth paying for a low interest rate or whether you’ll be better off with slightly higher interest and lesser fees. If you’re borrowing a substantial amount then it is probably better to pay a high fee and get a lower interest. This is because you’ll likely be paying the loan off for a long period, hence paying a higher amount of interest. On a small loan of say £80,000 or below the fee has a greater impact so a mortgage with a higher interest rate but little or no fees may be the better option.
Considering your future plans is also important as a lot of lenders will charge exit fees and early repayment fees if you decide to leave before of any offer period. If this is something that you might need to think about, be sure to ask the lender about this before signing any paperwork.
Get Organised
With mortgages becoming more demanding, it is more vital than ever that you’re organised from the get-go. Not only will this help to secure a mortgage deal in the first place, but will increase the lender’s trust in you which may enable you to negotiate for a better interest rate.
Firstly, making sure you’re on the electoral roll as well as double checking your address is correct.
Make sure the address on your driving licence is also correct. Not only is this important as part of proof of your identity, it’s also a criminal offence if it’s wrong.
Make sure you have your latest six months bank statements available & that you have managed your account correctly. Living in your overdraft will not instil confidence in the lender.
Have proof of income available & ensure it’s up to date & all tax affairs are in order.
We know mortgages are a commitment, and lenders want proof that you can commit.
Therefore, it is advisable to, if possible, stick to the same job for around 6 to 12 months before applying for a mortgage. Also try not the change rental properties in this time, as this also demonstrates stability. Another important one is, not to apply for credit up to or during your mortgage application.
Once you’ve decided on the perfect deal, make sure you keep all mortgage paperwork and read it all carefully before closing the deal. The Key Facts Illustration is one of the main pieces to keep handy, as well as the mortgage offer. Check all details are correct as if not delays can be caused. As delays occur, expenses may add up or you may risk losing the whole deal.
Mortgages are so personal, making it is hard to state what a good interest rate may be. Whilst it might seem important to get the lowest rate possible, individual situations could affect the rates you can get. Dependent on the size and length of your loan and lender’s fees, rates will vary. Do your research and crack your numbers, explore the market and know what you want before getting organised and approaching lenders. This is sure to help you get the best mortgage deal possible.
