Why pay more than you need to?
Everyone knows that the best way to keep your mortgage cheap is to find the lowest interest rate available. What everyone may not be aware of however, is that there are a few other, less obvious ways to keep your mortgage costs low. Keep the following points in mind when choosing your new mortgage and you will avoid unnecessary expense and pay less for your mortgage in the long run.
Check the overall cost for comparison
When choosing a new mortgage, don’t be swayed by the headline rate alone. The headline rate is designed to attract new business, and as a result, can be used to hide any number of evils. Often, the more attractive the headline rate is, the less competitive the mortgage will be in the long run, which could leave you repaying more interest than you need to. Avoid this by comparing mortgage products by looking at the overall cost for comparison, as this will give you a much better idea of how competitive each product is overall. Try to opt for the product that has the best overall APR to keep your mortgage as cheap as possible.
Go for daily calculated interest
Opt for a mortgage product that has its interest calculated daily rather than annually and you can save a lot of money in interest charges. This is particularly important if you have a flexible or offset mortgage, or you regularly overpay on your mortgage. If you are making overpayments on your mortgage and the interest is being calculated annually, the interest will be calculated on a larger amount than you actually owe. In other words, you’ll be paying more than you need to. Having the interest calculated daily means the amount you owe is adjusted daily, and interest is only charged on this amount, making your mortgage cheaper in long run.
Watch the overhang
When choosing your new mortgage, it is important to keep in mind that you may eventually want to remortgage in order to take advantage of a better deal with a new lender. When remortgaging, it is a standard practice to be charged an exit fee when leaving your current lender, but some lenders hit their customers with a second charge in the form of an early repayment charge. Early repayment charges are designed to stop you remortgaging during your introductory period, but some mortgage products have what is called ‘overhang’, which is when you are charged an early repayment charge for remortgaging, even after your intro period has ended. When comparing mortgages, always check that the early repayment charge is only applicable during the intro period. This will ensure you don’t have to pay unnecessary fees to remortgage later on.
Avoid the higher lending charge
Many mortgage lenders charge a higher lending charge to borrowers that have a small deposit. In general, if you are looking to borrow more than 90% of your home’s value you will have to pay a higher lending charge. Some lenders make you pay the charge upfront, while others will add it to the total loan cost. You can avoid paying a higher lending charge by choosing a mortgage product specifically designed for borrowers with small-to-no deposits (many first time buyer mortgages offer this feature); or by saving up a deposit. A sizable deposit will also help you secure lower interest charges, so it is definitely worth doing if you can.
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