Mortgages: Shop around to find a good deal

When looking for a mortgage, there are a number of factors to consider. Firstly, a homebuyer should work out how much they can afford to borrow and repay monthly. To do this they should look at their income and expenditure. Based on this information, a mortgage calculator, readily available online, may be used to work out the maximum amount that a lender is likely to offer a borrower.

The mortgage market is highly competitive and deals on offer vary greatly. Once a budget is set, the best way to secure a good deal is to shop around. When comparing mortgage deals a shopper should look at the initial rates offered as well as the overall Annual Percentage Rate (APR).

Whilst a low initial rate may be tempting, a shopper should check any related fees. Most commonly, fees may include an early repayment penalty and/or an arrangement fee. Such fees can increase the cost of borrowing unnecessarily and may limit the mobility of the borrowing. For example, if a borrower takes on a mortgage with a low initial rate, when the initial period ends, the rate will typically revert to the lender’s standard variable rate, which may be uncompetitive. If there is a large early repayment fee, then paying off the mortgage with the existing lender and then re-mortgaging may prove too costly. In such a case, the borrower will be tied into paying the uncompetitive rate.

When comparing the interest rate offered on each mortgage, the shopper will need to select the most suitable rate type. A rate may be fixed for a set number of years. Alternatively, the rate may fluctuate according to the Bank of England base rate. The latter types of mortgages are called variable or tracker rate plans.

The repayment method selected will affect the monthly repayments due. A capital repayment mortgage is a popular option, with such the borrower repays part of the capital (mortgage amount) and the interest accrued each month. These repayments will continue for the term of the mortgage, when this term ends the full mortgage balance will have been paid off. The other option is an interest only mortgage, with such, repayments are much lower because the borrower only repays the interest accrued. With this option, a lender will typically require the borrower to have another financial asset, which covers the mortgage balance.

Many lenders will offer a combination of repayment methods, for example, mortgages may be offered with an initial two or three year interest only period. After this time, the repayment method will switch to capital repayment. This type of product is intended to make home buying more accessible to first time buyers.

To find a good value mortgage deal, a homebuyer should compare a wide variety of plans and once a mortgage is in force, it should be reviewed regularly.

Article Source: http://www.phalenes.org/articles

Imran is a financial writer and writing on mortgage, loans and insurance topics. Loans are one of the best ways to fulfil your financial needs when you are not good financially. For more information please read loans articles.

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