Beginners' Guide To: Mortgages
Saturday 30 August 2008
What are the main different types of mortgage?
The first decision you need to take when shopping for a mortgage is whether you want a fixed- or a variable-rate deal. A fix will give you the certainty that your monthly payments will be the same for the length of your loan, but you may also lose out on any potential savings if interest rates go down during that time.
The most competitive fixed rates are usually two-year deals. However, bear in mind that if you go for a two-year fix, you'll need to remortgage in two years' time, and there will be costs involved. Most banks also offer three- and five-year fixed-rate deals, while a few lenders also offer 10 or even 25 year deals.
The most common type of variable-rate mortgage is a "tracker", which will move up and down in line with the Bank of England base rate. Make sure that you could still afford your payments if interest rates rise 1 or 2 percentage points over the course of a year, and be careful to check for any exit penalties on these deals. There are also discounted variable rates, which are linked to the bank's standard variable rate. These may not always move exactly in time with the base rate.
What fees do I have to pay?
Fees range between a couple of hundred pounds and several thousand. Generally, the bigger the fee, the lower the rate. When you're looking for a mortgage, take the fees into account. If you're taking out a big loan, then a low rate with a big fee may offer the best value. If you're taking out a smaller loan, then looking for the smallest fee could be crucial.
How much can I borrow?
Broadly speaking, banks will lend you up to four times your salary if you're buying alone, but most banks now make their calculations based on affordability – and will look at all your overheads before deciding how much they will give you.
Should I take advice?
A broker – such as London & Country (www.lcplc.com) which charges no fees – will have access to many deals that you won't find on the high street. However, before you sign up to their recommendation, look at the main lenders yourself. Some are now offering better deals direct than they do on the high street.
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
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