Eight ways to get the best mortgage rates
The mortgage market can be a quagmire for borrowers, but by following a few simple steps, homeowners can be sure to find the best deals on the market.
1. Consider a variable rate
You will get a more competitive mortgage rate if you take some risk with your repayments and opt for a variable rate, such as a tracker mortgage which tracks the base rate. A variable rate means repayments can change at any time; if it drops, borrowers benefit, but if it increases, they will have to pay more.
According to forecasts by money markets and economic experts, interest rates are expected to remain low for the next couple of years, which would suggest mortgages that track the Bank of England base rate are a good option. But the outlook changes frequently and economists can get it wrong.
Ben Thompson, managing director at Legal and General Mortgage Club, recommends borrowers stress test mortgages payments before committing to a tracker mortgage. He says: "If future payment increases feel difficult and you would rather budget with certainty, pay a premium to fix your mortgage rate for that peace of mind."
2. Use a broker
Brokers give you a good overview of the market and as some mortgages are only dealt through intermediaries, you should always check what’s on offer. It’s especially worth using a broker if you have specialist circumstances, such as a poor credit rating, as they will know which lenders offer the most competitive deals.
A good broker will also be able to explain the different types of mortgages and point out the fees attached.
3. Check direct lenders
While some lenders only work directly with brokers, others, including HSBC, the Co-operative, and first direct, don’t go through them at all. Therefore, you should look at what’s on offer directly with these lenders, as well as talking to brokers. Most of these lenders allow you to input your circumstances, such as deposit and mortgage required, online and will then give you the rates available.
4. Look for comparison site exclusives
Comparison sites are good for pointing out some of the market-leading deals available and also allow you to compare products in one place. The tables on mortgagecase.com show some of the top offers on the market, but you should check a few comparison sites, as some set up exclusive and highly competitive deals with lenders that you won’t be able to find elsewhere.
5. Try your current account provider
Ask your current account provider to see if they can offer preferential or loyalty deals on mortgages. Some providers, such as the Co-op bank, regularly provide their existing customers with some of the best rates on the market – and can even be worth changing provider for. However, you may find you need to have been a customer for a certain amount of time, typically three months, before taking advantage of such deals.
6. Look beyond the headline rate
Unfortunately, lenders make it difficult to compare the best deals by charging different fees on mortgages. Getting the best deal overall isn’t simply a matter of finding the lowest rate, the fees must also be factored in – and there is more than just one to watch out for.
The arrangement fee is usually detailed upfront, and is typically the most expensive, but borrowers also need to watch out for other fees, including the lender’s valuation and legal fees. It’s also worth looking at early exit fees, in case you want to change deals before the end of the mortgage deal.
Finally, scour the terms and conditions for any additional fees that can be levied. For instance, some lenders charge a fee to borrowers that choose to get their buildings insurance elsewhere.
Martyn Smith, head of mortgage products at Legal & General says: "Historically, lenders charged the customer to cover set up and administration. Today this is far from the case. Fees form part of the overall pricing and profit and as a result we have largely seen an increase. The most important consideration for anyone getting a mortgage is to find out what fees are going be collected, when and how."
7. Do the maths
To work out the best value mortgage, you need to work out the total amount you will pay over the entire length of the mortgage. So if you are opting for a two-year fixed-rate mortgage, multiply the monthly repayments by 24 and add the fees for the total cost. The mortgage calculators on our site can help you find out the repayments on different interest rates and loan terms.
Generally speaking, you will find that for larger mortgages, the fee has less impact. But always check total repayments, including fees, to make sure you’re getting the best deal, no matter what size your mortgage.
Lenders will ask if you want to add the arrangement fee to the mortgage itself but avoid doing this because you’ll end up paying interest on the fee, making it far more expensive. Pay it upfront instead if you can.
8. Can you overpay?
You should check if the mortgage you are considering allows you to build up equity in your home through overpayments. Granted, this won’t help you get a better rate when looking for a mortgage now and you may not be able to afford to do this. But overpaying means the overall term of your mortgage will shrink and you’ll save a lot in interest payments. Should you need to move house, because you have built up more equity in your home, you’ll have a much larger deposit to put towards your next mortgage, giving you access to better deals.
- Look beyond the headline rate - consider how fees factor in a mortgage
- Search for the best deals on the market
- If you want certainty over repayments, opt for a fixed-rate
By taking a few small steps borrowers can make sure they get the best mortgage possible