Getting a mortgage is a big decision. For the majority of people, it’s the biggest debt you’ll ever have, and it will take the most time to get rid of it. Buying a house is a stressful process and can bring some highs and lows along with it. But, how do you find the right mortgage for you?
First of all, you need to decide on a budget for the cost of your house. Do you need that extra bedroom that seems to put an extra £20k on the cost or could you do without? Is there a limit you want to stick to when looking at house prices? The bank might lend you a certain amount, but this doesn’t mean you have to get a house that’s down to that penny. The bank originally said it would lend us £100,000 (yes, really) more than we borrowed; this would have made our monthly payments a ridiculous amount but apparently that wouldn’t be an issue.
Next, decide how long you want the term (the length of your mortgage) to run for. Most of the banks in the UK seem to offer 25 or 30 year mortgages. The longer the term, the more you will pay back in interest but your monthly payments will be lower. In reverse, the shorter the term, the less you’ll pay back in interest but your monthly payments will be higher. There are pros and cons to both of these, so it is down to personal preference. Check your outgoings to see if having a shorter term would mean your outgoings would be stretched. If not, maybe this would be a good thing to consider.
The next thing you want to do is to try and work out the loan to value. This means that the cost of the house verses the amount you want to borrow. Ideally, you want a lower percentage of loan to the value of the house you’re buying. Having a good house deposit will come into play here.If you can get into the 80% or 70% loan to value, then your repayments will be much better in terms of cost in the long run.
Check the rate of interest. Now, depending on the fee you pay at the application stage of mortgages, there are varying rates of interest that you can get. These can sometimes depend on your loan to value rate, so watch out for those. The best ones at the moment are fixed rates and try to aim for under 3% where possible. The rate of interest makes a massive difference in the amount you pay back; the less interest you can get on your mortgage loan, the better. Much better to have the money in your pocket than in theirs!
This is optional, but when we were looking for our first house and therefore first mortgage, we wanted to option to overpay. On each mortgage there will be different amounts you can overpay; some state a % each month, some say % per year of the loan value, and some are unlimited. We specifically chose a mortgage that let us do unlimited overpayments, so that we can pay down the capital at a faster rate than we should on paper. This is a personal choice and does depend on your finances. This one is up to you.
All of these things should ensure that you get the best mortgage possible for you. The final thing to remember is that it is good to check every once in a while to see if you can get a better deal than you’re currently on. As we’ve paid quite a bit off our mortgage, we were able to get a better deal where the interest is lower and the monthly payments are reduced. We’ve reduced our mortgage payment by £120 and the interest by £70 a month, just by looking around. It means that our outgoings are less so we can look at our savings goals and hopefully meet them more quickly than before!
I hope this post is helpful to someone who is looking for their first mortgage.
Did you find a good mortgage? How long did it take you? I’d love to hear from you!
The last time I got a mortgage, I just walked into the bank and took whatever they gave me without thought or research. I paid dearly later on for not taking the time to understand what I can financially handle. This is a great post because I believe that most people get so caught up in just getting the home, that they just sign the dotted line without thinking about the fine print. Its the fine print that comes back to bite you.
I think that the excitement can take over when buying your first home, as it’s such a bit step! It definitely is the smaller print that can catch a lot of people out.
My husband bought his house in 2009 before we got together. His interest rate is 5.25%. We want to refinance this summer, but I am terrified!! My husband says that we have to get a 30 year again, but we’ll pay it off sooner – says we can’t afford payments on a 15 year mortgage. I’m nervous about what our new interest rate will be. If we could get somewhere under 4% then I think it’d definitely be possible for us to do a 15 year. Do they tell you what percent you qualify for before you lock in the term? Great post!
At the bank, they should tell you the various rates before you sign anything – you need to know what you’re getting yourself into! I think you should definitely look around is your interest rate is 5.25, as you can get better deals out there. Have a look online and see what you can find 🙂
Hi Nicola! I am going to stop being a lurker on your blog and comment 🙂 I randomly found you just after you had first posted and I always look forward to reading your posts. I live in South London and my husband and I are thinking of saving for a deposit for our first property (it will take some time as you know!)so thank you for sharing your knowledge on mortgages! Very handy indeed 🙂
Thank you for stopping by and leaving a comment! Good luck on saving for your deposit 🙂 it does take time, but it’ll be worth it in the end!