How to compare mortgages

For many homebuyers, the prospect of searching for the best mortgage can be overwhelming, given the vast number of different mortgage deals available in the UK. Most mortgage lenders offer a range of mortgage products, with competitive rates and benefits. But when comparing mortgages, it is best to consider the bigger picture and evaluate the benefits and disadvantages of each product.

• 1

  Look at the type of mortgage on offer. The number of mortgage products available from lenders in the UK is countless. Some mortgages are designed purely for first-time buyers while others are more suitable for those who wish to switch their existing mortgages. Within these categories, you will find fixed-rate mortgages–those offering a lower rate of interest that is fixed for a certain period of time–and tracker mortgages, whose rate of interest moves in line with the lender’s standard variable rate (SVR).

• 2

  Reflect on the pros and cons of each type. The mortgage you choose will depend upon your individual needs, but it may be useful to bear in mind that with a discounted rate, if the lender’s SVR increases, so will your monthly repayments. If the SVR decreases your repayments will, too. Interest rates on fixed-rate mortgages remain the same regardless of changes in the lender’s SVR. Other types of interest rate deals include discounted rate, capped and cash-back mortgages.

• 3

  Decide which repayment method you prefer. There are two ways for you to repay your mortgage. Choose between a repayment mortgage, which allows you to pay back the capital plus any interest incurred over the term of the loan, and an interest-only mortgage, for which you only repay the interest, leaving the originally borrowed loan still outstanding at the end of the mortgage term. This means that, unlike a capital repayment mortgage, you will need to put additional money aside, by investing into either an Isa or endowment policy, to clear the mortgage at the end of its term.

• 4

  Consider application fees. These can have a significant effect on your budget. Mortgage application fees usually correspond to the size of your loan. So if you are looking for a considerably big mortgage, you may wish to apply for a mortgage deal that requires a very small or no application fee. Some mortgage products require as much as £2000 per application.

• 5

  Find out if there are any penalties for paying off early. The majority of UK mortgage terms are between 25 and 30 years. Lenders calculate the annual percentage rate (APR) based on this term, among other things. If you wish to pay off your entire mortgage early, you may have to pay an early repayment charge (ERC) to compensate the lender for loss of revenue. ERC is usually levied as a percentage of the balance being repaid.

• 6

  Consider other factors such, as the overall annual percentage rate applicable, the initial or promotional interest rate and the lender’s SVR. The lower the rate of interest, the lower your monthly repayments will be. Also make use of an online mortgage calculator, which will enable you to see how much you can borrow according to your income and circumstances. Many mortgage lenders have their own mortgage calculators to help you get a firm idea of what to expect.