Mortgages are a type of loan used to buy a property; the mortgage is secured against the value of the property with monthly repayments made to the bank or building society that the mortgage is with.
To compare mortgages, you’ll need to think about the different options available, the property value, your deposit and the mortgage term from 5 – 40 years.
Whether you’re buying your first home, buying a new house or re-mortgaging, it’s important to be aware of what’s available, what you can afford and the fees you may need to pay.
With a fixed rate mortgage, your repayments are guaranteed to stay the same every month for a period, usually two or five years. However, fixed rates are sometimes higher than variable rates.
This is your lender’s standard interest rate for mortgages. You’ll be moved onto this at the end of a time-limited mortgage rate if you don’t switch and you’ll probably be paying more than you need to be.
Your interest rate is linked to your lender’s SVR (standard variable rate) minus a set percentage. The SVR can change at your lender’s discretion, so your monthly repayments will go up and down.
Your interest rate tracks the Bank of England base rate plus a set percentage. So as the base rate goes up and down, so will your monthly repayments.
An offset mortgage links your savings to your mortgage and ‘offsets’ their value against the loan balance. So you would pay less interest on your mortgage but your savings won’t earn any interest.
This allows you to pay just the interest charged on the loan each month which can mean lower monthly payments but you still have to plan to repay the amount you’ve borrowed at the end of the term.
When comparing mortgages, it’s important to have an idea of what you can afford and how likely it is you’ll qualify for what you would like to borrow.
There are many factors lenders look at when working out how much they think you can borrow, this includes your income, your outgoings and your credit history. They need to know that you can afford the mortgage you want. A good credit score will demonstrate that you can manage your money, and this together with a reasonably large deposit may mean that lenders will offer you a more competitive interest rate.
Remember that there’ll be other expenses, such as surveys, mortgage fees, legal costs and stamp duty to consider when working out how much you can afford to spend on a property.
You may be able to borrow around 4 to 4.5 times your annual income but this will depend on various factors such as your income, outgoings, existing loan agreements and your credit score.
Most providers want at least a 10% deposit, the higher the deposit, the better the mortgage deal will be. You should also budget for all the fees and costs involved such as solicitor’s fees, property surveys and stamp duty.
You will be able to compare mortgage deals from across the market and save with some of the biggest providers in the UK including Nationwide, Barclays, TSB, Santander, Scottish Widows and many other lenders.