For most people a mortgage is the biggest and most important financial product they will ever have to worry about, and it certainly represents the largest sum you’ll ever personally borrow. As mortgages last for decades, and compound interest can mean you end up paying significantly more with just a few changes of the interest rate, it’s important that you get your borrowing absolutely right.
First of all, the best mortgage rates go to the best customers, and the banks decide who the best customers are based on their credit rating. So, your first step is to get a totally free credit report from a company like CreditExpert, you can pay for these services, but as you can get them for free, why would you?
Next up, make sure you have a good mortgage calculator handy, these tools do the complicated work of sorting out compound interest for you to let you know the difference between the total amount you pay from one mortgage to another. Remember to read the small print, ignore introductory offers and instead keep an eye on the SVR (the standard variable rate) that the bank offers as this is a better guideline to how much you’ll ultimately end up paying.
The next thing to do is choose between the different types of mortgages available. If you’ve just got on the property ladder and had to scratch the deposit together, your best option is to go for an ‘interest only’ mortgage. These are mortgages where you only pay the interest on the loan, you don’t pay the loan back and, as a result, you end up paying less on a monthly basis.
However, the opposite side of this is that at the end of your mortgage term you still owe the main capital sum that you borrowed, so you need to think of how you’re going to pay this off. Bear in mind that the housing market should strengthen as you go (by inflation if nothing else) so your house should end up being worth more and you should have more equity in it, so this can help.
An alternative option is to get a good fixed rate deal for a number of years. A fixed rate mortgage is one which doesn’t change and then reverts onto an SVR, these can be a great way of saving money (and knowing exactly how much you’re going to pay month to month) over the short term (if, for example, you’re not considering staying in your current house for too long).
A final tip is to look far and wide and know exactly what you’re looking for before you go and apply for it. Ideally you’ll only have to go through the process of making one application and you’ll get it right first time. Good luck!
