Things to Consider When Comparing Mortgages

When considering mortgage alternatives, most people will simply look at the interest rate at the start of the loan and make a decision based on the lowest interest rate. This is understandable - but a big mistake.

If all else was equal, this would be the obvious solution. But if there is one thing in the mortgage market on which we can be certain, it’s that all things are almost never equal! So what do we need to look out for and why? Here are a few ideas;

1. The Mortgage Term. The period over which you repay your mortgage will have a tremendous effect on the cost of the mortgage over its lifetime. It will also affect the monthly repayments in the opposite manner. For example, borrowing over 360 months (30 years) will cost you more than the same mortgage taken over 300 months (25 years) but the monthly repayments on the longer mortgage will be less.
2. Penalty Terms. If you are tied into a mortgage or early redemption (paying off the mortgage) attracts a penalty fee and administrative costs, you need to allow for this when considering your options.
3. Capped versus Variable vs Fixed. We’ve written on the difference between these different terms before. But when considering mortgage options an understanding of these definitions and their impact on your monthly budget is critical.
4. Fees - lenders charge a variety of fees and borrowers must look at the “total to pay” including fees to make a fair comparison.
5. The Devil is in The Detail! Most mortgages will have fairly standard terms relating to things like Loan to Value (LTV) but few people realise that when house prices fall, lenders might insist that the borrower inject more cash into the loan (reducing debt and rebalancing the LTV). Knowing whether these terms apply can be important.
6. The Right tool for the right Job. A mortgage to an owner occupier will be allowable to someone buying a house to let. The risk profile of each loan is different and many loans aimed at owner occupiers specifically exclude ‘buy to let’ or short or long term lettings (or even voids where the property is left empty).

For these and many other reasons, it’s important to have a full understanding of all the relevant terms included in each mortgage offer if you are going to be able to properly consider which mortgage is best for you. At Mortgage Required we know this and we have the tools and experience to guide you through this potential minefield unscathed...