Learn to be a Financial Hunter - Not the Hunted

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How to buy the right mortgage

at the best price in 4 easy Steps

Step 2: Contact 3-4 mortgage brokers and 3-4 banks
When looking to buy any financial product it normally always pays to shop around. This is especially true when trying to find the right mortgage where at any one time there are an enormous amount of deals available.

So look through the 2 mortgage magazines and find the details of at least 3-4 different mortgage brokers and the same number of banks/building societies as well as your own bank.

Important note: When it comes to selling mortgages there are 2 types of advisers -

  • Tied - This means the company in question is tied to a mortgage lender (or a small number of them). Banks and building societies are normally always tied, so Barclays will obviously push their own products and won't be able to sell a Natwest or A&L mortgage

  • Whole of market - As the name suggests these brokers are not tied to any one lender so can theoretically offer any mortgage, hence whole of market

At first glance it would seem it's best to go with a whole of market broker. Yes, usually this is the right decision but it's still worth contacting a few banks and building societies because they sometimes have special offers which they sell directly.

Also, as I indicated above contact your own bank to see if they can offer you anything interesting. Chances are they won't but it's always a possibility that they have special deals available to their customers.

Use the phone for some initial research

The good news is that most mortgages these days are brokered over the phone so it won't matter if you live in London and the broker or building society is in Manchester.

Now you have some ideas of what style of mortgage you're interested in (repayment, interest only, tracker etc) call each of the brokers/banks/building societies and explain the following -

  • Your financial circumstances, including a rough idea of what you can afford to pay every month

  • What sort of property you're interested in buying, its value and how much cash deposit you have (most will require a minimum of 10%)

  • Talk to them about some of the mortgage ideas you're thinking about, perhaps asking their opinion on some offers you've seen etc

  • Ask them what they suggest and see if they have any good deals available
Maybe the brokers/lenders will offer some advice and information straight away or they might take a few days to get back to you.

When you've got all the information you should be able to spot some deals which look interesting so mark them down to investigate further.

More detailed research - Use the Mortgage Comparison Form
After your initial research you should have a list of between 6-12 different mortgages so now it's time to look into the deals in more detail.

My advice is to print out the Mortgage Comparison Form (PDF format) and fill it in as you ask the 9 questions, listed right below.

But one important point before you start - don't be apprehensive about asking what you might think is a stupid question.

If you ask a 'stupid question' and it saves you money, is it really that stupid? That's why there are never any stupid questions when money and finance is involved.

Question : What is the interest rate I'll be charged?
  • Will you be paying a discounted rate, fixed rate or the Standard Variable Rate (SVR), and if a special rate how long will it last, 6 months, 1 year, 5 years etc
  • What will happen at the end of the discounted/fixed rate period? Will for example the interest rate be set at the lender's SVR (Standard-Variable-Rate)
Question : What is the lender's SVR?
  • Useful information can often be gleaned here as some lenders, notably the Building Societies, have traditionally had lower SVRs than the banks
  • Look to see who is charging a high or a low SVR and then tend to favour those institutions with low SVRs even if you're not going to be paying it at that time. You might for example have to pay the SVR at sometime in the future if/when a discounted deal expires
Question : What will the monthly repayments be at the current interest rate?
  • Also, ask what the difference would be for every 1% rise in the interest rate and then stress test your ability to pay, for example -
  • If the current rate is 4% the monthly repayment is £600 which rises by £150 per 1% increase in the interest rate
  • So if rates were to rise 1%, 2% or 5% could you still afford the mortgage? If not then the loan might be too large
  • Remember, it's only common sense to prepare for some negative interest rate movement even if it never happens
Question : What's the APR?
  • An interest rate APR enables us to compare like with like as it offers a true reflection of what the loan will cost, including the all-important fees and charges
  • Without the APR rate, ie if only the interest rate is taken into account, it's possible for a mortgage charging 4% to be more expensive to service than one charging 5% because the 4% deal has large fees and charges attached
Question : How much are the early redemption charges and how long do they last?
  • An early redemption charge is where the lender sets a fee if you want to cancel the mortgage within a set period of time, usually the first 1-3 years
  • I have no problem with a redemption charge of under 3 years but any more and the mortgage starts to get inflexible and inflexibility is something to be avoided when money is involved
  • It's also important to check the exact date when no exit-fees are charged (or it gets significantly reduced)
Question : What are the arrangement fees?
  • Fees and charges are where we have to remain on high alert as many lenders love to try to overcharge
  • They can often get away with this behaviour because many of their customers are far too trusting and therefore won't bother to do any proper research
  • One of the main problems with fees is that they can come in many different forms, all with different names so this is why you must ask for a total breakdown of them all
  • Also, how will the mortgage broker get paid? Some charge a flat fee, others a percentage of the overall deal and it's also common for the broker to get paid directly via the lender. Make sure you understand and get a proper answer to this question
  • Don't be worried if the broker wants to charge you for advice as sometimes it can work out cheaper this way
Question : Does the mortgage come with compulsory product(s) attached?
  • Some lenders will insist it's part of the mortgage deal that you also take out another of their products, perhaps a current account or an insurance policy
  • if they do they'll sometimes allow you to opt out for a set fee, in the £25 - £50 range
Question : Can I make overpayments, underpayments or take a payment holiday?
  • This question is important as it gauges how flexible a mortgage is, as some mortgages put restrictions on how you can make repayments
  • Overpayments are where extra money is paid, perhaps £150 this month, nothing the following and then £175 the month after that etc
  • An underpayment is where you're supposed to pay £600 but are allowed to pay say £400 that month
  • A payment holiday is where you're allowed to miss a payment altogether
Question : Will you be charged a Mortgage Indemnity Guarantee (MIG)?
  • If you're asking for a large loan in relation to a property's value then many lenders will demand a mortgage indemnity guarantee
  • As the name suggests an MIG is an insurance policy which guarantees to pay the lender's losses if you default, but the cheeky thing is you're paying for someone else to be covered!
  • If you're forced to pay this charge how long will it last, 1, 2 or 3+ years?
An example of a comparison form which has been filled out
Towards to top of this page I suggested you print out and fill out the Mortgage Comparison Form (PDF format). Below is an example of how it might look, note I have only filled in the details for one mortgage -
Broker/Lender's name
Natwest
Style of mortgage
Interest only
Mortgage name
First Time Buyer special
Interest rate
3.75%
The lender's current SVR
4.85%
Monthly repayment at current interest rate
£789.5
APR
3.99%
Early redemption charge and length (years)
Yes, 2% of loan value for 2 years. Then £50
Arrangement fees
£999
Compulsory products
Yes, they require me to open a current account
Overpayments/underpayments
Maximum 15% overpayment per year.
No underpayments allowed
MIG
No
What this step has accomplished
Think back to how much you knew about mortgages, including the nuts and bolts, before you carried out this step? Now, not only are you far more knowledgeable about the mortgage market but you should also be far more confident about what you're trying to achieve.

Plus, with the knowledge you've gained it's going to be hard for any professional to pull the wool over your eyes when it comes to the all-important fees and charges.

What's needed now is some time to mull over the different deals and that's what the next step is about.

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