Q. Should I fix my mortgage now, switch to a new lender or stay on my current rate? I’m afraid of making a mistake and being stuck with a bad decision.
A. The short answer is simple. Get advice from a financial broker. But if you want to go it alone, try to avoid the five classic mistakes below or you could end up with a dud deal.
What’s just as important as finding a deal that suits you is avoiding making an absolute clanger. It’s a case of borrower beware when it comes to taking out a mortgage, because getting it wrong can cost you thousands.
Below are five major mistakes that could lead you to the wrong mortgage:
1. Only speaking to one lender for your deal.
The classic mistake made by some borrowers is to go straight to one lender when they need a mortgage – usually their banking provider. Failing to shop around, do any research yourself or visit a broker is the best way to end up with a deal that the rest of the market can probably wipe the floor with.
2. Falling marginally into an expensive LTV bracket.
What you really don’t want to do is tip just the wrong side of a lender’s loan-to-value (LTV) bracket, because it can make your monthly repayments much more expensive. The bigger your deposit, the cheaper the mortgage. If there is any way you can muster the extra money to tip you into the preferential LTV bracket, you could bag a much more competitive mortgage and save yourself a fortune. Fall just the wrong side of a lender’s cut-off point and it could cost you dearly.
3. Choosing the lowest interest rate.
If you want to increase your chances of making a major mortgage mistake, simply choose the mortgage with the cheapest rate. This doesn’t mean that they are the best mortgages for you though. The lowest rates can tend to come with high fees, be more expensive long term and are only available to those with the biggest deposits.
4. Ignoring your own personal circumstances.
Many borrowers are keen to get the best mortgage and they think it’s a cop out when experts tell them there isn’t one. But there really isn’t one. Not so long ago, for example, tracker and variable mortgages were de rigueur because they were cheaper than fixed rates, plus with interest rates expected to stay low, they didn’t present too much risk. But for a family that absolutely cannot risk a rise in their repayments, variable rates may not be as suitable as a fixed rate, especially with interest rates rising. Ignore your own personal circumstances and follow the mortgage crowd at your peril.
5. Forgetting to read the small print.
Mortgage small print can be complex, boring and long. But it is important, particularly the Key Facts about your Mortgage document. Read it cover to cover, more than once; make sure you understand it. If you don’t, ask your lender or mortgage adviser to explain it to you.
Know what your repayments will be, initially and at the end of any deal. Can they rise in line with interest rates, and by how much? How much is your mortgage fee? Will they allow over payments? It might sound like jargon but it can cost you dearly.
By Philip Cullen of Southeast Mortgages & Financial Services
This article aims to give information, not advice. Always do your own research and/or seek out advice from a regulated broker before acting on anything contained in this article.
Warning: Your home or property may be repossessed if you do not keep up repayments on your mortgage or any loan secured on it.