How to get the best mortgage rate and fee

Getting the right mortgage can be a complicated task but if you are looking to purchase a house then it's important to make sure you sign up to a home loan that will suit your needs and finances best.

The first thing to do if you're planning to buy a property is to spend time looking for it, of course. But once you have set your sights on your dream home, there are plenty more things to consider.

Indeed, the job doesn't end there and you might find that getting the right home loan is even more difficult than picking the perfect abode.

But it doesn't have to be. As long as you keep your eye on the details of each mortgage then you are bound to find one that will work for you.

To begin your search, you might want to work out what you can afford your monthly repayments to be. Use mortgage calculators online and put in the figures to determine your limit and whether the property's price falls within this amount.

This is also an effective way to see an estimate of what you can expect to spend on paying off the home loan every month and you might want to use this as a benchmark when taking a more in-depth look at lenders' mortgage offers.

Once you have an idea of what you should be expecting to fork out every month, you'll be better informed to look closer at the different products available. You can start your search by putting your details into price comparison websites and seeing what results they come up with. Or, why not seek the support of a financial advisor who will be able to talk you through the entire process and search different mortgages for you?

You might even want to pop into the banks themselves and speak to them directly as this will give you a better idea of what you will get from the product.

When looking at the home loan offers, the first thing you need to decide is whether you are going to go for a fixed-rate or tracker loan. If you need assurance that your monthly repayments will not increase during the term of your mortgage, then you might prefer a fixed-rate product. The lender sets the interest rate and it will not fluctuate, which means you know exactly how much you'll need to pay every month.

Or, you might opt for a tracker loan that follows the level of the Bank of England's base rate. Therefore, when this is low, your repayments will also be at a low level. However, you will have to make sure that you have reserves to afford a higher monthly repayment as the interest rate could rise at any time.

Once you have chosen which type of product you are going for, you can start looking closer at the individual mortgages. Be careful not to be swayed by offers of low interest rates as you should always read between the lines.

For example, a number of banks will entice you to sign up to them with a low monthly repayment but you will have to pay a high product fee for doing so. Be savvy with the numbers and work out whether this will add up to more over the term of the mortgage than paying a slightly higher monthly charge with another product. Calculate the total mortgage payments for the term of the loan - whether it be a two-, three- or five-year one - then add on the product fee.

When comparing it with another product, you will be able to get a clearer indication of which will end up cheaper over this period.

You should also take a close look at what happens after the initial term. The banks might tempt you with attractive low-interest rates for the first couple of years, but you should see if - and how much - these will rise after this time comes to an end. If the price hikes to an extent that you wouldn’t be able to afford the loan, then you might want to look elsewhere.

Another thing to consider is changing the number of years you take to pay off the house. If you've found your dream home and don't want to part with it, you might be torn if you can't afford the monthly repayments on the loan. In this case, you can see what happens if you extend the number of years over which you repay the mortgage.

The average home loan term is 25 years but if you change this to 30 or 35, you'll find your monthly charges drop and you may even be able to afford the house of your dreams. Doing this depends on how long you want to spend paying off your lender and how old you are when you take out the loan. But, if it is something you can do, then it might be worth considering if it allows you to make fewer steps up the property ladder in the long run.

Indeed, mortgages have become increasingly flexible and you will find that you are able to change the terms of the product after a few years or find another lender. So, if you sign up to a 35-year home loan now, you can swap this back down when you are able to make a bigger financial commitment to the property.

Buying a house is complicated but choosing a mortgage doesn't have to be. As long as you take care to pay attention to the small print, you are sure to find a home loan that suits you perfectly. 

Moneyextra.com recommends you take independent financial advice before acting on any article

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2011-06-16 16:21:03 © Moneyextra.com