An SVR is your lender’s own rate and what your mortgage is likely to switch to once your deal has ended, but it’s unlikely you would actually sign up to an SVR at the start of your mortgage. So your choice is most likely to be between fixed and tracker.
With a fixed-rate, you pay the same amount every month for the duration of your mortgage deal. On a tracker, however, the interest rate you pay can change as it tracks the Bank of England’s base rate. If the base rate goes down, so will your payments, and, likewise, if the base rate goes up, so will your payments.
If you like to know exactly how much your mortgage is costing you every month and want protection from future rate rises, a fixed-rate mortgage could be the best choice for you. But if you want to be able to take advantage of interest rates dropping, a tracker might be tempting.
Length of deal
As well as thinking of the type of mortgage deal that’s most suited to your needs, you’ll also need to consider how long you want to lock yourself into it for. Your mortgage deal is a contract, and if you try to break it early to move to a new deal before your current one has ended, you could be fined.
These charges can be quite high – high enough, in fact, to outweigh any saving you’d make by moving to a new interest rate. So, you must think carefully about how long you’re willing to lock yourself into a deal for.
You can choose a short or long-term deal depending on what you prefer, what you qualify for and what your lender is offering. While most first-time buyer mortgages tend to tie you in for two or three years, there are now fixed-rate mortgage deals that last ten years.
When choosing what length of deal to go for, ask yourself whether you’re happy to lock into something and know what your mortgage will cost you for as long as possible, or whether you’d prefer a short tie-in so you can regularly take advantage of the best deals.
If you choose a repayment mortgage, part of your monthly payment will go towards paying off the balance of the money you borrowed to pay for your home and the other part will go towards the interest on this loan. So, the interest rates offered by lenders may help to sway your decision.
You may not be offered the best interest rates out there or even the one you applied for – it all depends on your unique credit history. And if you’re applying for your first mortgage, it’s likely that you won’t get the most competitive APR right now. But, providing you make your repayments on time and don’t miss them, you may qualify for a better one when your current deal ends and you apply for a new one.
Fees and charges
Some lenders charge a fee for taking out a mortgage. These are usually the mortgages that have the best interest rates attached to them, and you’ll need to pay the fee to secure it.
Always do your calculations carefully to see whether you’ll still save money repaying a mortgage with a lower interest rate even if you have to fork out for the fees.
As we mentioned earlier, some lenders also charge an early exit fee if you leave your mortgage deal before it ends. Find out when you sign up if your mortgage comes with this, as if it does you’ll need to be confident that you’ll be happy to stick with the deal until the end – or pay the price.
The lender you apply to has to decide not only whether to lend to you, but also how much. This depends on a range of different factors including your credit history, your income, your outgoings and how much the lender thinks the property is worth.
However, it’s not just the lender that should think seriously about how much you borrow – you need to too. If you borrow at the very top end of your budget, could you still afford your repayments if the interest rate went up? Or if your income dropped?
Use our mortgage repayment calculator to get an idea of how much you’ll pay each month for the amount you want to borrow. While you’ll only know exactly how much your monthly repayments will cost when you sign up to your mortgage, this can give you a useful guide.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.