Recent research by consumer champion Which found that just one in 200 people could correctly rank the cost of five two-year fixed-rate mortgages. The test asked 1,000 people to rank the total cost of five £100,000 loan deals over 24 months, with a total of just five participants ranking all five deals in the correct order.
At the moment, there are some fantastic fixed-term deals emerging on the market. However, some lenders are facing criticism charging high up-front fees that are negating the effects of the lower rate.
Understanding the mortgage process will help buyers to secure the best deal for their circumstance, and increase their chances of being accepted for an appropriate loan.
In recent years, banks have advertised about reverse mortgages for the elderly. They promise homeowners access to their equity without having to pay the banks back immediately. Without understanding how it works, it does sound like a risky proposition. Before making a decision about it, here is what you need to know in order to understand how reverse mortgages work.
Reverse mortgages, also called Home Equity Conversion Mortgages (HECM), are a type of loan intended for older citizens who own a home. This type of loan differs from conventional loans in which owners must pay back the principle borrowed plus interest and fees on a monthly basis. Instead, the loan is deferred while the home owner continues to live in their home.
The purpose of a reverse mortgage is to allow senior citizens to utilize some of the equity of their property now without struggling to pay back a loan right away.
It’s important to remember that bigger mortgages may actually see some benefit from paying a hefty upfront fee in return for a lower rate, whereas this usually isn’t the case on cheaper properties. For example, if a lender offers a five year fixed rate at 2.59% but asks for a £1,345 arrangement fee, the mortgage would need to be for £280,000 or more before the borrower saw any saving.
If you feel out of your depth, these are a number of useful online mortgage calculators to work out whether a low rate with higher fees could actually save you money.
Repair Your Credit
Improving your credit score is the best way to save money on mortgage deals because the better your credit, the more you open yourself up to lenders. In turn, this gives you a greater scope of deals to choose from.
The same goes with saving money for your deposit, too. The more you have to offer, the more lenders will be interested in your case. Therefore you’ll get the pick of the bunch rather than being limited to any lender that will accept you.
By way of improving your credit rating, you can:
- Make sure any bills are paid on time
- Keep the amount of money you have on credit to a minimum
- Don’t ‘max out’ cards as this hints at financial difficulty
- Don’t close accounts – if you have a credit account but don’t want to use it, cut up the card instead of closing it. One of the variables lenders look for is amount of credit used vs. credit available.
Consider Shorter Terms
Fixed-term arrangements are currently levying some good rates for home buyers, with the number of five-year fixed rate deals having recently risen by as much as 73%.
However, the downside of fixed-term agreements is that they typically levy redemption penalties and therefore provide less flexibility. For example, if you wanted to pay the loan off earlier than anticipated, or you decide to transfer it over to another property, you may be subject to an ‘early redemption charge’, typically between one and five per cent of the mortgage value.
To secure the best deal for your circumstances, make sure you take all of the above factors into consideration when negotiating your mortgage deal.
This Blog Post is written by Ali Raza on behalf of Aldermore. Aldermore offer fantastic Residential Mortagages and Commercial Mortgages services. Ali has been working in the Banking Industry for several years and frequently writes about finance and SME Businesses.