Guaranteed cheaper borrowing. The best mortgage tip ever?

This is a way of guaranteeing you’ll borrow at the cheapest possible rate, regardless of whether interest rates go up or down in the next six months.

What the banks don’t make clear, is that you usually have at least six months grace to take up a mortgage deal you have been offered, and this massive loophole can save you a bundle. By bagging a top deal now, rather than waiting until just before you need to remortgage, you will have two chances to get the best possible rate.

Ditch the deal that costs most

If interest rates go up within the six months, then you stick with the one you pre-booked. If they go down and you can save more money, then ditch that one and go for a new, cheaper product. It is a great way to beat the banks.

Book your deal now

If you book a deal now, pay as little as you can to do it, then when you come to about a month before your remortgage deadline, see where you are. Check out the mortgage market at that point, work out all the costs, including mortgage fees, and see whether your pre-booked deal or a new deal would be cheapest. Then take the best option.

Best two-year fixed rates

Lenders are competing heavily at the moment on two-year fixed rates – which means lower rates for you.

First Direct is currently offering 3.64 per cent for loan-to-values of 65 per cent, with an arrangement fee of £199 and a booking fee of £299.

Save yourself thousands of pounds

If you needed to borrow £100,000 on an interest only basis over 25 years, you would pay £303.33 per month on this deal. For a repayment it would be £508.16.

Over the two years you had this deal, this mortgage would cost you £7,279.92 in interest alone, or £12,195.84 on a repayment basis.

But if rates had gone up to 5 per cent by the time you got the mortgage sorted later this year, your interest payments would go up to £416.67 a month, and your repayments up to £584.59 a month – £113.34 and £76.43 a month more respectively. Even if you paid the same arrangement and booking fees, this higher priced deal would cost you an extra £2,720.16 and £1,834.32 respectively.

This trick works no matter which mortgage you are going for, discounted, fixed rate, variable rate, tracker or an offset mortgage.

Use a mortgage broker

You should ideally use a mortgage broker to benefit from the advice available in what is a complex market, and you have someone to do the legwork for you. Choose a broker that can search the whole market, rather than just a panel of lenders.

The First Direct loan would not be available through a broker, the bank will only deal directly with customers. While it may be the cheapest rate, but it might not be the best deal for you, and a broker can help determine that.

For example, Newcastle Building Society is offering a 3.65 per cent two-year fixed rate, and you can borrow up to 80 per cent of the property value. This also has a lower reservation fee – just £99 – so if you find a better deal in six months time, you have had a smaller outlay.

Best five-year fixed rates

On five-year fixed rates, Leeds Building Society is offering 4.75 per cent on loans up to 75 per cent loan-to-value. But the charges are steep, with a booking fee of £199 and a completion fee of £800. You could also be stung with a completion fee of 1 per cent of the advance.

Newcastle is offering a five-year fix at 4.89 per cent, with a reservation fee of £99 and a completion fee of £489. Again, you would have a smaller initial outlay if you went for a different deal in the end. This is also available up to 80 per cent loan-to-value.

Beat the lenders at their own game

You would have to consider all of these costs to get the right deal for you, but this tip means you can beat the lenders at their own game. So get in touch with one of our advisers to guarantee the cheapest rate.