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Knowing Your Sums – The Key to the Best Mortgage Rate

Those days when banks fell over themselves to offer mortgage are long gone. Still, you can up your chances of taking advantage of current home loan packages with the right mortgage makeover, and it all starts with knowing your sums.

True enough, if you want to get a good deal, you should know how much specifically you have to borrow, your home’s worth, and the mortgage percentage of your property’s value, otherwise known as loan-to-value.

You can estimate your home’s value by studying similar properties for sale, remembering to deduct a reasonable discount, and using an online home price calculator. The best mortgages are given to those making larger deposits of 40 per cent at minimum, but don’t fret – if this is too much for you, lenders can offer options to those who would like to borrow 75 percent or below. It becomes trickier to get a good rate above 75 percent, but you can still find a mortgage. Take note, the higher your loan-to-value, the pricier mortgages will be.
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The length of the deal also has an impact on the rate. Two-year deals are cheaper than five-year contracts. Mortgage rates are hinged on a whole range of interlinked factors; your central bank’s base rate and its expected path; how much a bank or building society must pay savers to get their cash and lend the money out as mortgages; and money market funding costs. You need to weigh up all these factors when selecting a mortgage.
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You should also decide if you want the security of a fixed rate, which is advisable if you think you would be struggling if the monthly payments increased, or are willing to risk a tracker and paying a higher amount if the base rate shoots up.

Then again, the rate is not everything you should consider. Lenders also earn an income from fees attached to mortgages. These can be much, making what looks like a cheaper mortgage turn out to be more expensive; hence, make sure to add this to your loan’s total cost when comparing mortgages.

Remember, the deal with the cheapest rate is not automatically the best mortgage. Super-fee mortgages, where low rates are offered in exchange for a hefty arrangement fee, indicates that borrowers with smaller loans can end up out of pocket if they opt for a bargain rate. As a rule of thumb, bigger mortgages equal high fee/low rate deals, but be careful with percentage-of-loan fees, which are higher-priced than bigger loans.

Finally, watch out for any end-of-mortgage charges, like exit fees and early repayment charges, along with costs for getting the property valued and the legal purchase process itself. These can all mount up, but there are always alternative deals that may work out for you if you only just ask your lender for a few options.