Introduction to Finding the Best Mortgage
A mortgage is likely the biggest financial commitment you’ll make in your life, so it’s important to find the best option possible. Comparing different lenders and their available options can be a tedious and confusing process, but it’s worth investing the time in to ensure you are making the right decision. With so many different mortgages, your first step should be to understand your options and learn how to compare them correctly.
Interest Rates: What You Need to Know
Interest rates form a major factor in how much you will end up paying over the course of your loan term. They can vary dramatically between lenders, so it’s important to compare the different rates offered before you commit to one.
Fixed vs Variable Interest Rates: Fixed rate mortgages are the most popular option when it comes to mortgages, as they provide you with a consistent repayment amount each month. However, variable rate mortgages can sometimes offer lower rates, though with more risk as the rates can go up as well as down, and therefore the payments can change unexpectedly.
Compounding Interest: You should also consider compounding interest when comparing lenders and interest rates. Compounding interest is when interest is added to the principal, meaning you accrue more interest the longer the loan goes on for. Whilst this may sound like a bad thing, it usually works out more beneficial to the lender and therefore they may be willing to offer lower rates in return.
Fees and Charges: What to Look Out For
Fees and charges can vary considerably between lenders, and they can add up quickly so it’s important to be aware of any extra costs you may have to pay.
Upfront Costs: Many lenders require upfront costs such as application fees, establishment fees, and other miscellaneous charges. Whilst you may be able to negotiate these fees, they can be difficult to avoid so always ask about them upfront.
Closing Costs: Closing costs can vary from lender to lender and are usually due when the loan is finalized. Common examples include title insurance, appraisal fees, and state or local transfer taxes. Make sure to ask about these fees as well when comparing lenders.
Early repayment fees: Some lenders may also charge early repayment fees if you pay off your loan prior to the end of its term. Whilst this isn’t a common practice, it’s still something to consider and ask about when comparing mortgages.
Loan Term: Short vs Long
Loan terms will vary depending on the mortgage and the lender, but they usually range between 10-30 years. Having a longer loan term will mean smaller monthly payments, however you may pay more overall in interest as loans typically take much longer to pay off. Similarly, if you opt for a shorter loan term you should expect higher monthly payments but may end up paying less overall in interest.
Shopping Around for the Best Mortgage
Once you have an understanding of the different types of mortgages and fees, you can start to compare lenders and their rates, fees and terms. There are a few different ways to go about this:
Comparison Sites: Comparison sites are a great way to quickly compare different lenders and their options, although they may not have the most comprehensive list so it’s best to research other lenders in addition.
Local Lenders: Shopping for a mortgage locally may be a better option as you will be able to get more detailed information about each lender’s offers. Local lenders are also more likely to be willing to negotiate and offer you better terms and rates.
Online Lenders: Online lenders are becoming increasingly popular, as they often offer lower rates and more options. However, their customer service and guidance can be limited compared to local lenders.
Final Tip: Get Pre-Approved
Before you begin the loan process, it’s worth getting pre-approved. This will give you an indication of what kind of loan and interest rate you can expect before you apply. Having a pre-approval will also make you a more attractive borrower to lenders and may give you more bargaining power.
Conclusion
Finding the best mortgage rate and terms can seem like an overwhelming process, but with the right research and preparation it doesn’t have to be. With so many different options available, comparing lenders and their rates, fees, charges and terms is essential if you want to get the best deal possible. Getting a pre-approval before you start can also be beneficial, as it will give you more bargaining power and an indication of what to expect in the loan process. With these steps, you can save both time and money as you search for your perfect loan.