Interest rates are still set at a historically-low level, but that may not last for much longer. While no one knows when they will start rising (not even the Bank of England), it makes sense to consider whether or not you have the best mortgage rate you can get.
A good mortgage rate will determine what your monthly repayments will be. It will also determine how much you will pay back over the next few years at the very least. If you can get a better rate than the one you have at the moment, it could save you a significant amount of money.
Opt for a cheap fixed deal
You can choose either a variable-rate mortgage, where the rate can vary frequently, or a fixed-rate mortgage. The latter will be fixed for a specific period of time. There are a variety of fixed-rate options to choose from – two years is usually the shortest, but you could also opt for three, five or even 10-year periods.
A fixed-rate deal gives you peace of mind that your mortgage payments won’t go up for the duration of the deal. It makes a lot of sense to get one of these at the moment, since interest rates are so low. While variable rates can be cheaper, they will increase as soon as interest rates go up. This means it is a lottery as to how long you’ll be able to enjoy the low rates. If you decide to switch to a fixed-rate mortgage later on, you may not be able to get a deal that is as cheap as it would be at present.
Don’t forget the fees
Mortgages tend to have fees attached to them. This is where you have to be careful and spend some time doing your research. For example, one recent mortgage deal was available at an incredibly-low rate of just 1.15%. There was a fee of £1,995 for this mortgage. At the same time you could have got a fee-free mortgage deal of 1.89% fixed for the same length of time.
You may assume the lower interest rate would give you the better deal, but in fact over the first 12 months you would end up paying around £1,500 more for that mortgage. In this case the 1.89% rate would work out cheaper because there is no fee attached.
This is why it is so important to compare figures and to crunch numbers when you are looking online for low mortgage rates for your requirements. It’s often said a mortgage will be the biggest loan you will ever have. If you focus on the interest rate only and you don’t take into account the effect fees can have on the total amount you will pay back, you could end up paying more than you need to.
It’s tempting to go straight to your bank or building society to get a mortgage. However the chances of getting the cheapest one on the market will be very slim indeed if you take this route.
One route you can try is to use a broker. This may incur a fee but it is a good way of getting someone qualified to check a wide variety of mortgage providers for you. Make sure you know what the fees are, which providers they don’t check and their terms of business before you start. You may find there are still a few providers you’ll need to check on your own.
This all seems like a lot of hard work, but if you get the cheapest deal that’s ideal for you, it will be well worth doing.