For most people, getting a mortgage will be the most expensive single committment they will ever make. That can make choosing a mortgage one of the most intimidating things you can do. The tips below will help a first-time buyer avoid many of the pitfalls that lie in wait for the unwary.
1. Take Your Time
Mortgage lenders are trained to convince you that their product is the best on the market, but you have to take a step back and make that judgement call yourself. The only way you can do this is to shop around and study each mortgage product carefully. The best mortgage for you is the one that ticks the most boxes considering your individual circumstances.
2. What’s the Catch?
There is no such thing as a perfect mortgage. Beware sweeteners such as discounted interest rates (often short-term) and make sure you are aware of how much it will cost you in fees if you repay early or switch lenders.
3. Weigh Up Incentives
Incentives such as a free valuation, free insurance or cash rebate can suit some borrowers. But be aware that many incentives are accounted for in higher rates; don’t be fooled.
4. Is it Worth Borrowing More?
A 90 per cent loan-to-value mortgage can seem a blessing to those struggling to get on the housing ladder due to lack of savings, but many lenders apply a higher lending charge for the privilege. Consider whether it is worth approaching family for help with a deposit.
5. Ask Questions and Read the Small Print
Choosing a mortgage is a massive deal, so don’t let your mortgage lender fob you off with fuzzy explanations and a slick sales pitch. Don’t agree to anything until you completely understand everything that is on the table. When filling in your application, read every last word and make sure it all makes sense. Consider talking to an independent mortgage advisor.
6. Assess Flexibility
Repayment flexibility can make a big difference in how comfortable your mortgage is. For example, if you receive big bonuses, a mortgage which allows overpayments may suit you to a tee. If you are planning a big overseas sabbatical, a payment holiday option could benefit you.
7. Repayment or Interest Only
A repayment mortgage costs you more each month, but you know your mortgage will be settled at the end of it; an interest-only mortgage is more affordable but you will need to set up a ‘repayment vehicle’ to clear the initial capital at the end. Which option suits your circumstances?
8. Think About Initial Costs
First-time buyers might be surprised by how much money it costs to set up a mortgage. Make sure you know what percentage your lender will charge, and whether the fees will be payable up front or added to the loan.
9. Be Honest About Affordability
It might be tempting to be overly optimistic about your incomings and outgoings, but don’t lie on your application form. Not only is it illegal, taking out an unaffordable mortgage could turn your dream home into a living nightmare.
10. What Type of Mortgage?
Do you want the security of a Fixed Rate mortgage or are you happy to risk rate rises to take advantage of a current low-rate Variable Mortgage. Tracker mortgages and Capped mortgages are also worth considering.