Why you shouldn't be swayed by mortgage rate alone
Rock bottom mortgage rates have made owning a home much more affordable, but when choosing which deal to go for there are several factors homebuyers need to consider besides the rate.
Here's what to watch out for.
How flexible is the mortgage?
Most mortgage deals will tie you in for a certain period, which means you'll often need to pay steep early repayment charges if you want to leave the deal early, switch lender, or make significant capital repayments over the annual 10% that is typically allowed.
If flexibility is important to you because you want to overpay by more than 10%, or because you might want to sell up soon, make sure any deal you are considering won't hit you with any fees for doing so. Some deals are completely free of early repayment charges, so you won't face any nasty financial surprises if you want out.
What are the arrangement fees?
Often the mortgages offering the lowest interest rates charge the steepest arrangement fees, so remember to factor these in when looking at the overall cost of a deal.
Fees can range from nothing at all to £1,500 or more, but are often around the £1,000 mark. However, many lenders offer a range of options so you can either go for a lower fee and higher rate, or a lower rate and higher fee.
Which of these options is likely to be best for you will depend on your individual circumstances. As a general rule, those with smaller mortgages may find it more cost-effective to go for a deal with a higher rate and a low or even no arrangement fee.
Are there any mortgage incentives?
Many lenders now offer generous incentives designed to tempt homebuyers to sign up to their deals, so it's worth looking at how these could benefit you financially.
For example, when you take a mortgage, either to buy a property or remortgage, the lender will want to carry out a valuation to make sure the property is worth what you think it is, or what you are paying for it.
The cost of the valuation varies depending on the property value, but would typically be several hundred pounds. Some deals will offer a free or refunded valuation, which could make a big difference to your buying costs.
Other mortgage deals come with cashback, which is usually paid at the point of completion. Cashback is often in the region of £250, but some mortgage deals offer much bigger sums, sometimes running into thousands of pounds. Again, this can be used to cut overall buying costs and so should be taken into consideration when comparing mortgages.
If you're remortgaging, many lenders offer free basic legal work with some of their deals, which will cover the cost of arranging your switch. Legal costs will typically set you back around £350, so again, make sure you take this into account in when researching deals.
There's a huge range of mortgage rate, fee and incentive combinations available, so whatever your requirements, you should find a deal to meet them. Just remember to look at the whole package on offer, rather than basing your decision on the rate alone.
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