A mortgage represents the opportunity to borrow tens of thousands of pounds to purchase a home. That is obviously going to be a lot of money to owe. So doesn’t it make sense to do what you can to save money when it comes time to borrow? It does, according to The Mortgage Broker Ltd.
If you are in the market for a mortgage, it is important that you understand the principle of ‘total cost of borrowing’. You see, there is more to a mortgage than just the amount of money borrowed and the interest you pay. You also need to understand annual percentage rates, compounded interest, fees and charges, and a number of other things that can all contribute to the total amount of money you will spend on buying a house.
The total cost of borrowing includes all of those expenses. It is often much higher than the average homeowner realises. The more you know about it, the better equipped you will be to save on a mortgage. To that end, here are five tips to get you started in the right direction:
Educate Yourself About Introductory Deals
Mortgage lenders are more than happy to offer introductory deals as a way to sell more mortgages. Like similar deals on credit cards, an introductory mortgage deal offers comparably low interest rates and minimal fees. They come with a limited term that, upon expiration, immediately triggers higher interest rates and more costly monthly payments.
You owe it to yourself to have a thorough understanding of how introductory deals work. That way, you will have a better understanding of what you are actually being offered as you shop for mortgages. Remember that knowledge is power. The more knowledge you have, the better your position for negotiating a good deal.
Find Your Mortgage through a Broker
You could go directly down to your bank or building society to apply for your next mortgage. They would be more than happy to help you. If you want to save money, don’t do it. Find your next mortgage through a certified mortgage broker instead.
Mortgage brokers are trained and certified experts who specialise in mortgages. They have a thorough understanding of the market in every respect. As such, they are the most qualified among all financial services professionals to help you find the mortgage that is perfect for your situation.
A mortgage broker can save you money by looking at more offers than you could possibly find on your own. Not only do they represent mortgage products from dozens of different lenders, but they also have access to offers not available at banks and building societies. They have far fewer limits, so they give you more choices.
Choose the Shortest Possible Term
Lenders make money on mortgages by charging interest. Furthermore, they collect interest on every monthly payment you make. What does this tell you? It tells you they are collecting more interest on loans with longer terms. It also tells you that you can save money by electing the shortest possible term.
Let’s say you are offered two mortgages of £130,000 each; one at 7% for 30 years and another at 10% for 15 years. A basic mortgage calculator reveals you would spend a total of £311,395 by the time you paid off the first mortgage. The second mortgage would cost you a total of £251,441 despite having a higher interest rate. You would spend less on the second deal as its term is half that of the first deal.
Interest rates are absolutely important for saving money on a mortgage. But so are terms. The general rule is that a shorter term results in less interest paid. So do the maths. If you can get both a short-term and a low rate together, you have bagged yourself a great deal.
Make the Largest Down Payment Possible
It also helps to make the largest down payment you possibly can. Why? Because it does two things. First, it reduces the total amount of money you are borrowing. Second, it allows you to shorten the term while staying within your budget. This combination can save you a lot over the life of your mortgage.
Look for Government Assistance
The government has established a number of assistance programmes to help buyers get into homes. Under the Help to Buy banner, there are schemes based on shared ownership, building a starter home, and acquiring ownership of a rental home. There is even a Right to Buy scheme through which eligible buyers could save tens of thousands of pounds by purchasing a rental property.
There are plenty of ways to save money on your next mortgage. You are not limited simply to what your bank or building society chooses to offer on any given day. Because there are so many options, you owe it to yourself to look around. It is well worth it to put in the time and effort. Remember that saving tens of thousands of pounds on your mortgage gives you more money to put toward other things.