Deciding when to get our first mortgage is a big decision for us. We have the potential to build a large deposit but it may be better for us to invest our savings to make larger gains while our costs are low. This guest post gives some great tips on what to look out for in making this important purchase.
Finding inexpensive mortgages, or remortgages, can play a huge part in the type of home you can afford. A home’s asking price is a critical aspect of whether or not you can buy it, but your mortgage terms are the issue that will seal or cancel the deal. Here are a few tips that will help you find an inexpensive mortgage with a reliable and trustworthy lending institution.
Bigger Deposits
Borrowers who have the lowest loan to value ratios on the market will find themselves being offered the best deals. If you are only borrowing 60% or 50% of the amount that your chosen home is valued at, lenders will have a wide range of mortgages offers to present to you. If you are only able to afford 10% or 20% of the home’s value as a down payment, the range of mortgage terms you can agree to are very limited.
Agreement in Principle
Too many home buyers make the mistake of thinking that an agreement in principle with a lender is binding. The best way to find an inexpensive mortgage deal is to shop around. You are not going to get a great deal from the first lender you speak to, unless you are very lucky. Even if you go as far as an agreement in principle with a lender, it is still within your rights to shop around for better deals. Mortgages are volatile, which means the terms you are offered can vary drastically from week to week. Spend time, talk to a lot of lenders, and only accept terms on a mortgage that you are 100% comfortable with.
Watch Out for Hidden Fees
Mortgage lenders have become very clever in the way they package fees into your deal. They will present the deal in the most favourable terms possible, and it is only when you are sent your first bill that you will realise the kinds of fees that are involved. Always ask the person you are dealing with about all their fees, and try to pay as many of them up front as you possibly can.
Fixed Rates Are a Must
The biggest mistake that borrowers make is getting involved in a variable interest rate mortgage. These discounted mortgages are presented as very appealing, because they have low interest rates. However, the lender has the right to change the interest rate whenever they want. That means you could be paying 6% interest rate in two years on a loan that you initially took out at 3% interest rate. Avoid this at all costs! Only get a mortgage that has a fixed rate, even if that rate is slightly higher than some discounted offers you are getting.
Interest-only vs. Repayment Mortgages
You must be aware when you are signing up for an interest only mortgage. This mortgage will allow you to pay the cost of borrowing each month, but it will leave the borrowed amount untouched. Only a repayment mortgage takes care of both sections of the loan.
If you could go back in time make and make a different decision on your mortgage, what would you do? When do you think is the best time to get your first mortgage?
I remortgaged two years ago with the same bank and so far no one has beaten that rate, but I check every once in a while. 25% down was the minimum to get the best rate, and as rates are low, I didn’t want to put more down or overpay. For me the best time was asap, but I knew I’d move so I got a place that could be a great rental to, in order to have freedom of moving.
Sounds like it worked out well. Great to hear that you managed to rent out your first property!
With our next home that we buy, we definitely want to put down a larger down payment. We are trying to save as much cash as we can right now so that we can do that. Great post!
Hi Michelle, all the best with your savings for your next home! A large down payment is vital, it’s amazing how much additional interest you have to pay between a 25% and 10% down payment.
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