Once you've had your offer accepted, you'll need to complete your mortgage application. You can start the application process earlier than this stage, but you won't be able to finalise the application until you know the property you are buying, and how much you are paying for it.
Finding a mortgage. The well known comparison sites (such as
moneysupermarket.com and
comparethemarket.com) provide an easy and useful tool to compare your mortgage options. You could also use a mortgage broker (they may or may not charge a fee), or go directly to a mortgage providers site. I have used
L&C Mortgages, a free broker service you can use online or over the phone; they are very easy and the customer service is great - there are plenty of options out there, but I don't have experience of the others. One thing I have always done, however, is check the comparison sites after I know what L&C Mortgages view as the best deal to ensure there isn't a better deal that L&C Mortgages can't offer me.
Using the comparison sites. The sites I mention above are really user friendly, and you can get the mortgage options quickly and easily. They'll need to know:
- Value of the property. How much the property is worth / how much you are paying for it.
- Your deposit. How much you will be contributing upfront to the value of the property. You will therefore be borrowing the value of the property minus the amount of your deposit. This ratio is called the loan to value (LTV). The loan to value is expressed as a percentage. For example, if the property is worth £100,000, and you have a £25,000 deposit, you are borrowing £75,000. The LTV is therefore 75% (75,000 divided by 100,000 = 0.75 = 75% expressed as a percentage). Generally, the lower the LTV percentage, the lower the interest rate. More on this at the end of the section.
- The term. This is how long you want the mortgage for. A 25 year term is fairly standard, but may not be best for your circumstances. Assuming it's a repayment mortgage (see below), your monthly payments will be higher the shorter the term.
- Rate type. Options are:
- Fixed rate. The interest rate will remain at this rate for the length of the agreed initial term (not the term mentioned above).
- Variable rate. The interest rate will vary over the initial term. These are normally quoted in relation to the Bank of England base rate (BBR) or the providers Standard Variable Rate (SVR). For the initial term, you could, for example get a discounted rate on the SVR.
- Initial term. The period of time you want the initial rate to last for. The longer the initial term, the higher the interest rate tends to be, but the more certainty you will have of the rate.
- Repayment type. Options are:
- Repayment. Over the term of the mortgage, you will pay off the total balance of the property and you will own the property with no mortgage debt at the end of the period.
- Interest only. You only pay the monthly interest but the amount your mortgage balance (the amount you owe) remains the same. At the end of the term, you need to have arrangements in place to pay off the outstanding mortgage balance, or get another mortgage.
The output. Once you've input the details above, you'll be presented with a list of options. The common headings are:
- Initial monthly cost. What you will pay each month for the initial term. If you've chosen fixed, this won't change, but with variable, it could change throughout the initial term.
- Initial rate. The interest rate being applied to the mortgage for the initial term (and how the initial rate is calculated).
- Total upfront fees. The total amount of money you will pay as a fee for the product. This captures arrangement fees, application fees, bank transfer fee, valuation fees and any other fees. If the site just states product fees, it is not capturing all of the upfront costs associated with the product. Remember, you can chose to add these to the money you are borrowing for the mortgage, but it will increase your monthly payments.
- Initial term cost. This is the total amount of money you will pay over the initial term, including mortgage payments, total upfront fees and any incentives offered.
- APRC. This is the Annual Percentage Rate of Charge. This is the percentage rate the mortgage would cost you, including fees and mortgage fees over the term, if you didn't change the mortgage after the initial term (and the mortgage providers SVR didn't change).
Usefully, the comparison sites allow you to quickly and easily adjust the
rate type, initial term and
repayment type so you can easily see how the options change as you adjust. You can also sort by the most important factor to you. For example, if you want to find the cheapest
initial monthly cost, sort by that, but you may find you pay higher fees. I find
initial term cost a very useful figure, as it shows the cheapest option over the
initial term, and provides the balance of upfront fees against monthly payments - sometimes it is worth paying a higher monthly payment as it isn't as much over the initial term as paying the upfront fees. Have a play around with a comparison site and you'll see the impact fees can have.
Other factors. Once you've found the product that looks like it's a good option, you can quickly find out further details on the comparison site:
