It isn’t surprising that mortgage comparison sites, commonly available via the internet, have become so popular, recently. With literally thousands of mortgages now available on the market, it can be virtually impossible to work out which is likely to offer the best deal for your personal circumstances.
Getting the Correct Comparison
Before you, as a potential borrower, consider using an online mortgage comparison site, it is vital that you think through exactly what you are looking for and the financial situation in which you find yourself. For example, are you looking to move in the next few years? Is this likely to be a mortgage for life? What are your current work circumstances? Is your salary likely to rise or fall in the next few years? What type of property are you looking for and what is the necessary deposit likely to be?
Understanding the important factors that concern you personally will enable you to make the most of the mortgage comparison sites available. Those with particularly difficult or unusual circumstances should be careful to ensure that they are using the most appropriate comparison tools. Issues such as adverse or bad credit or those looking for financing on an unusual project would be wise to consider contacting a specialist broker or looking at advice geared purely towards the type of financing required.
There are multiple general mortgage comparison websites as well as brokers available and care should be taken to select the broadest possible range of choices. In particular, you need to ensure that it is an independent calculator so that the results are accurate and not biased towards one specific mortgage lender.
Setting Your Parameters
Have a clear idea of what you are in a position to offer and what you want from a mortgage product so that you can set the appropriate parameters. Typical considerations include:
* the value of the property;
* the amount of deposit that you have available;
* your annual income (both sole or joint, if applicable);
* any cash flow issues that you may have or expect in the short- to medium-term; e.g. whether you require cash back or fees to be paid;
* for how long you intend to hold the mortgage, i.e. for how many months are you prepared to be tied in with early repayment charges.
Having established the fundamental requirements, find a comparison chart that deals with all of these factors, either in the way that they allow you to sort the responses, or by the parameters that you can set out in your request.
Understanding the Results
Comparing mortgages, even after you have the offerings in handy chart-format, can be tricky to analyse. In most cases, the comparisons will show the basic information, such as who the lender is, the type of mortgage and the annual percentage rate payable. Bear in mind that the annual percentage is generally considered a better indication of cost than the pure interest rate. The APR takes into account all of the costs to which a borrower will be subject in the year and works out the percentage based on the initial amount borrowed.
Many comparison tools will allow you to sort the results based on the different findings. For example, you could sort the results to show the lowest APR. This is a very useful tool. Resist the temptation to look exclusively at one of the aspects of the results produced. By simply looking at one aspect (normally the APR), you may be missing vital information about the product that you are choosing. This is absolutely critical, because when using an online mortgage comparison site (as opposed to a mortgage broker), you are responsible for ensuring that you fully understand all the pros and cons of each product.
In order to make sure that you don’t inadvertently miss any key factors, draw up a list of the issues which are important to you. Pay particular attention to future plans such as when you may wish to redeem the mortgage.
A very useful tool which many comparison sites provide is the ‘cheapest over X years’ option. This allows users to look for the most cost-effective option over a set number of years such as the next 3 or 5 years. This calculation will work on the presumption that you will not move your mortgage within that period. Always check what penalties you could face, should you decide to redeem your mortgage earlier than anticipated.
Keep a careful eye out for what appear to be ‘bonus’ deals such as cash back or a mortgage free period. Whilst these may seem attractive on the face of it, often the overall cost of a lump sum cash back is far in excess of the original amount received. If you are looking at this type of deal, do a calculation without the cash back to see just how much the lump sum is adding to your monthly mortgage payments. It may well be that you would be better off with a home loan to supplement moving costs, rather than cash back on a mortgage.
Once the Decision is Made
Having decided on the best mortgage product for you, it is important that you then discuss your requirements with the provider. Many mortgage lenders, especially in today’s financial climate, have very stringent rules in terms of who they will lend to. Even if you have a good credit rating or have borrowed before, it is possible that the lender may either reject your application or place a higher cost on you than you had anticipated.
For this reason, it is worth selecting your top three options and arranging an appointment with each of the lenders to discuss your situation and to ensure that the rate you think you would receive is, in fact, correct. Bear in mind that the situation can (and often does) change on a daily basis and, whilst mortgage comparison tools are a great way to ascertain a general idea of which lenders are best suited to you, they should not be the only source of information that you draw upon.
Did you know that …
* People are amazingly unaware of their own mortgage products, so much so that it is estimated that approximately 70% of all British borrowers have no idea what a 0.25% increase in the interest rate would mean to their monthly payments. This lack of knowledge is partly down to understanding and partly due to the haphazard approach with which we take out loans. When purchasing a property, it is easy to become consumed with the many details such as removals, planning permissions, surveys, etc. As a result, we often totally overlook one of the most crucial aspects, namely that of finding the best financing deal.
* Not only do very few people know what the future of their mortgage looks like, a whopping 77% don’t even know what an APR is. A worrying 44% of people thought that the APR reflected the interest rate and 15% though that it was the amount of the loan that had to be paid back annually. The real definition is that it is the interest rate plus any charges that come with the loan. If so few people understand the terminology, how can they hope to make the most out of mortgage comparison tables?