It’s not all about the rate

Mortgage rates are reaching record lows, with some lenders offering loans with rates of less than 1%. While this seems like great news for borrowers, it’s more important than ever to look beyond the headline interest rate and study the small print to make sure that a loan that looks attractive doesn’t contain hidden penalties or costs that might make it unsuitable.

The first thing that you need to consider is the amount of deposit required to qualify for these new low loan rates. You might find that the best rates are only available to borrowers who are able to find up to 40% of the value of the property.

There are usually fees involved with these deals as well, and these fees can run well into four figures. By the time you factor the fee into the rate you are paying, you might find that it would make more sense to look at a loan that had a higher headline rate but came with a lower fee. And remember that if you add the fee to the loan you will end up paying interest on it over the whole term of the loan.

The other thing you need to be aware of is whether the rate that you are being offered is fixed or variable, and if it is fixed what happens to it at the end of the fixed period? A fixed rate is great if you are running on a tight budget but at the end of the fixed period the rate can increase dramatically so you need to be ready to move to another product, or perhaps even another lender, if that happens.

And if it is a variable rate then you need to thing about what happens if rates rise. You might have the lowest variable rate in the market today but a higher than average rate in a month’s time if your lender increases its low rates.

As always it’s a question of not just accepting the first deal you are offered, and not just accepting the cheapest deal without making sure that it is absolutely right for you.

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