Buying a home is one of the biggest financial decisions you’re likely to make in your life. And with so much money at stake, it’s wise to compare mortgage deals before making a decision. With interest rates, cashback, fees and flexibility to take into account, comparing mortgages can be a challenging process. Here are just a few factors to take into consideration when comparing mortgages.
Your monthly repayment will include both capital payments and interest payments. The exact ratio between the two will vary depending on how far into your mortgage term you are. In the first few years, your repayments are likely to be made up primarily of interest rather than capital.
This means that if you were to sell your property after living in it for just a year, the amount of capital you’d have invested in the home is unlikely to have grown significantly above your deposit amount.
Often, people assume that the best way to find the right deal is by comparing how much they’ll have to pay each month. However, although this gives you an indication as to how manageable the mortgage is in the short term, this won’t show you how cost-effective the deal is overall.
Sometimes when you apply for a mortgage you’ll need to pay certain fees before your application is complete. These can include a booking fee, application fee and valuation fee.
In some cases you’ll have to pay these fees upfront, but other lenders will let you spread the cost through your mortgage deal. It’s worth noting that if you choose the latter option, you may be expected to pay interest on top of this charge.
Not all mortgage products have these fees, however. Some lenders or mortgage advisors will cover them for you.
When taking out a mortgage, many people think that the amount they borrow is the amount they pay back. So if, for example, a homebuyer needs to borrow £100,000 for a home, they may assume that that is what they pay back. However, in reality, you’ll repay a lot more and the exact amount will depend on your chosen interest rate.
For example, if you borrowed £100,000 at a 3% interest rate and with a 25 year mortgage term, you’d actually pay £142,239 back.
Some lenders will offer you a cashback incentive for taking out a mortgage. Usually, this is paid on completion of your application and tends to vary from £100 to £1,000.
Once your mortgage fixed rate period ends, the amount of interest you pay will revert to the lender’s Standard Variable Rate (SVR). The SVR can fluctuate based on a number of factors such as the Bank of England’s base rate, market competition and the stability of the economy.
Although it’s wise to consider your lender’s SVR when looking for a mortgage, it’s worth remembering that it could change by the time your fixed rate period ends.
With so many factors to take into account, working out the true cost of your mortgage can be incredibly difficult. This is where a mortgage broker can prove invaluable. Rather than recommending the deals that are cheapest in the short term, they’ll compare a wide number of mortgages before highlighting those that are most cost effective overall.