Things to consider
There's more to choosing a mortgage than picking a particular type - although it's one of the most important in terms of being able to budget effectively for your monthly payments. So here are a few other questions you should ask before you make a decision.
How much can you borrow?
If you’re applying directly, the mortgage lender will be able to tell you. Or, if you have an independent financial adviser, they will tell you how much – although it will vary depending on which lender you choose. The figure is based on how much you earn (for example you may be able to borrow three times your annual salary, how much you can afford when taking into account your other financial commitments, and the amount of deposit you can put down.
Will there be an early redemption penalty?
Few of us have the same mortgage for the full term of 15 to 25 years these days. We may want to remortgage and release equity or just move to a better deal to take advantage of changes in interest rates. For these reasons, it’s worth checking if there will be an early redemption penalty and how much it is. This is a fee the lender will charge you to end the loan early, it may be a percentage of the loan or a set amount.
Is there a tie-in period?
Similarly to the redemption point, if you think you may want to change your mortgage or sell your home in the next few years, you should check if you are tied in for a specific period. This is often the case if you’re on an introductory rate. There will always be a way out if you want to change, but it may cost you more than you’ll save by moving.
Is it an introductory rate? And if there is, what will the rate be at the end of the offer period?
If you’re being offered an introductory or discounted rate, make sure you know how long it’s for, and how much your payments will be when it runs out. This is important for budgeting, as you’ll need to plan in advance how you will be able to make the larger payments, or to begin the process of switching to another mortgage before the rate goes up.
What are the arrangement fees?
Arrangement fees are administration charges requested by some lenders to pay for the cost of setting up your mortgage. Not all have them, but those that do can vary enormously. So always check how much they are and how they’re payable. Sometimes they are added to the amount borrowed and paid back as part of your mortgage.
How much are survey and valuation fees?
As part of the mortgage application process, a survey will need to be carried out. A surveyor will inspect the property you require the mortgage to buy to ensure that it’s worth the amount you’re being asked to pay and to make sure it’s in good condition.
A survey may highlight potential work that needs to be done. If this work is likely to impact the value of the property negatively, the bank may make it a condition of lending you the money that this work is carried out. This may also give you an opportunity to renegotiate the price with the seller. For example, if the property needs a new roof and you weren’t made aware, you may be able to get some or all of the cost of these repairs taken off the selling price.
How much deposit do you need?
Some mortgage offers are only available if you have a minimum level of deposit, which may be as much as 20 percent of the purchase price. So be sure to check you have the required deposit before applying and paying any fees.