How to Get the Best Mortgage Rate by Knowing Your Sums

The days of banks scrambling to give you a mortgage are historical. However, you can improve your chances of taking advantage of available home loans by getting yourself a mortgage makeover, beginning with knowing your sums.

So if you want a good deal, you must know particularly how much you should borrow, how much your property is worth, and the mortgage percentage of your home’s value, or loan-to-value.

You can get an idea of your home’s value by checking out similar for-sale properties, keeping mind to deduct a fair discount, and using a house price calculator (many of them online). The best mortgages are given to those making larger deposits of 40 per cent at minimum, but don’t fret – if this is too much for you, lenders can offer options to those who would like to borrow 75 percent or below. Over 75 percent gets trickier to get a good deal, but it remains possible to find a mortgage. Remember, greater loan-to-values mean pricier mortgages.
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The rate is also influenced by the length of the deal. Two-year deals are cheaper than five-year contracts. Mortgage rates are based on an entire range of interrelated issues; the base rate of your central bank and its projected path; the amount a bank or building society should pay savers to attract their money and lend this out as mortgages; and finally, funding costs on money markets. You need to weigh up all these factors when selecting a mortgage.
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You should also decide if you want the security of a fixed rate, which is advisable if you think you would be struggling if the monthly payments increased, or are willing to risk a tracker and paying a higher amount if the base rate shoots up.

Then again, the rate is not everything you should consider. Lenders also earn an income from fees attached to mortgages. These can be a lot, making a seemingly cheaper mortgage turn out more expensive, so it’s a must that this is added this to your loan’s overall cost as you compare mortgages.

Remember, the deal with the cheapest rate is not automatically the best mortgage. Now that there are super-fee mortgages – low rates in exchange for a huge arrangement fee – small borrowers can end up out of pocket if they go for a bargain rate. As a general rule, bigger mortgages mean better high fee/low rate deals, but you still have to watch out for percentage-of-loan fees, which are pricier than larger loans.

Finally, watch out for any end-of-mortgage charges, like exit fees and early repayment charges, along with costs for getting the property valued and the legal purchase process itself. These can all mount up, but there are always alternative deals that may work out for you if you only just ask your lender for a few options.