What Is A Good Mortgage Rate In Today’s Market?

April Calendar

If you are looking to buy a home, in today’s market, you will likely be taking out a mortgage to do so. It is true that in generations past, mortgages were not always necessary. However, due to rising housing costs, it is rarely an attainable goal to own a home without getting a mortgage from a lender. You probably are already aware that when you get a mortgage, you have to be aware of the mortgage rates, which are everchanging. So you may be wondering, then, what is a good mortgage rate today?

Read on to learn about how the mortgage process works as well as how to find the right lending deal for your financial situation.

Toward A Mortgage Explanation

A mortgage is a secure loan that you obtain from a lending institution, such as a bank. This loan provides you with the money you need to purchase the property that you want. The loan must then be paid back to the lending institution. You will be paying it back over a set amount of time. You will make a payment each month. By the end of the term, you will have paid the amount you borrowed as well as a monthly interest amount that is set by the lending institution at the outset of your agreement with them. A mortgage is referred to as a secure loan because it is borrowed against the property you are purchasing. Once it is paid in full the property is completely yours. However, if you miss any monthly payments, the lending institution can repossess your property.

The amount of the sales price that you take out a mortgage on is going to depend on how much of a mortgage deposit you can make. A mortgage deposit is also referred to as a down payment. The more that you can put towards the property upfront, in your mortgage deposit, the less you will need to borrow for your mortgage. This could mean that you will be able to find a better rate, so you would then pay less interest and the amount you pay every month would be less than if you can only put a small mortgage deposit down.

In the UK, your mortgage will come from a bank. You can do your research to find the best lending bank with the best terms for you and then go to the lender directly. Another option is you can utilise a mortgage broker. Mortgage brokers do the work for you. They offer mortgages from multiple lenders and sometimes, they will offer some incentive deals to entice you to work with them.

What Do Lenders Consider?

To qualify for a mortgage, one thing that the lender will need to see is your work history and income proof. If you run your own business, it can be difficult to show this type of information. However, your lender may offer a self-employed mortgage if you explain that you run your own business. They will let you know how this mortgage works and what type of documentation you would need to proceed. Your responsibility then, would be to gather the needed information and provide it to the lending institution so that they can review it and put you on the track to obtaining your mortgage.

Another factor that lenders consider, upon your application, is your age. So, what if you are older and your circumstances have led you to need to purchase a home? Are you out of luck? Will you automatically be denied? You are not out of luck and being an older adult does not necessarily mean that a mortgage is out of the question. While many lenders have a maximum age for their clients to meet, there are some that offer mortgages for older borrowers. You may have different qualifications to meet, but when you find a lender that offers this type of mortgage, they will guide you in what the qualifications are.

How Is A Mortgage Different From Other Loans?

At this point, you may be wondering if a simple loan would provide you with what you need to purchase a home. Remember that a mortgage is considered to be a secure loan because they have collateral to back them up – the house itself. With other loans, a borrower and a lending institution agree on an amount of money to be transferred from the lender to the borrower. The borrower then promises to pay the loan back as well as the interest that accrues on the loan during an agreed amount of time. Like a mortgage, other loans are repaid each month. Unlike mortgages, though, other loans are what is considered unsecured, as no collateral is used. With no collateral, the other loans are smaller amounts of money and have high-interest rates. Thus, unless you have a lot of money to purchase your home and you are just needing a small amount to fill in the gap, then this is likely not the solution you are looking for.

There Are Many Kinds Of Mortgages

It is important for you, as a buyer to know and understand that are many different kinds of mortgages that lenders may offer. There are first-time property buyer mortgages that you can take advantage of if this is your first mortgage. This type of mortgage offers a low deposit. One such mortgage, offered with aid from the government is the help to buy a mortgage. For council homes, first-time home buyers can look into the right-to-buy mortgage option.

If you are not a first-time home buyer and your credit score is not great due to poor financial decisions in the past, you can check with your lender or your broker to see if you might qualify for a bad credit mortgage. You will have to have a mortgage down payment for this type of loan unless you have a guarantor. With a guarantor, then you may be able to have a small or maybe even no deposit to get the mortgage loan.

The SVR mortgage, or Standard Variable Rate, is one where the lender sets the rate and can change it whenever they desire. You as the buyer have some choice, meaning that you can leave this loan and take out a different mortgage at any point that you would like. But, again, that comes with the bank’s freedom to change the rate when they want to, even if the Bank of England rate has not changed.

If you are offered a tracker mortgage, the interest rate on it will be based on the Bank of England’s base rate for lending. So, if the Bank of England base rate goes up or down, will your mortgage, which is a downside? Another drawback with this mortgage is that if you decide to switch to another lender before your mortgage has come to an end, you will be responsible for paying a charge for early repayment. On the positive side of a tracker mortgage is that when tracking rates dip, your mortgage repayments are a lower amount.

Your lender might offer you a tracker mortgage with terms where they give you a discount on their variable rate for maybe a year. This is sometimes called a discount mortgage. It begins with a lower payment in the early part of the mortgage’s term and then goes up after a period of usually twelve months. Your benefit here is that you pay a lower rate at the beginning of your loan. Also, you benefit from this type of loan when the lender decreases the SVR. The downside to discounted rates is that your budget may be all over the place, leaving you unsure of how long your current monthly repayment will last and how to budget for your other expenses. On top of that, if you see the Bank of England base rate increasing, your rate is also likely to be increased.

If you are offered a fixed-rate mortgage, know that your interest rate does not change and that also means then, that your monthly payments also do not change. The consistent payment amount is good, but know that this usually comes at a rate that is a bit higher than a variable-rate mortgage. Also, be sure that you understand that if the interest rates at the Central Bank fall, yours remains at the agreed-upon fixed amount.

If you have savings that you can apply towards your home, you may be offered an offset mortgage. The concept behind an offset mortgage is to use the borrower’s savings to offset the interest charged on their mortgage, potentially reducing the amount of interest paid over the life of the loan. With an offset mortgage, the borrower’s mortgage account is linked to one or more of their savings and/or current accounts held with the same financial institution. Instead of earning interest on the savings, the balances in the linked accounts are offset against the outstanding mortgage balance. This means that the borrower only pays interest on the difference between the mortgage balance and the linked account balances.

Another mortgage option is the interest-only mortgage where your monthly repayment is just a payment on the interest, then when your term with your lender is up, you pay the principal amount back to your lender.

If you want a mortgage term where you can overpay on your mortgage or take a break from paying your payments, ask your lender about flexible mortgages. This type of mortgage allows borrowers to make extra repayments, take payment holidays, and make underpayments within certain limits, giving them greater control over how they manage their mortgage debt. Flexible mortgages are well-suited for borrowers who anticipate variable income, unexpected financial events, or the desire to pay off their mortgage faster.

The Cost Of A Mortgage

Many who are shopping for a home ask “How much would my mortgage cost?” The average borrowing amount for a mortgage in the UK, currently, is £184,376. For a mortgage of this amount, the average monthly repayment amount stands at £665. Rent payments are lower, currently than the average mortgage payment. The total that you will pay for your mortgage though, is dependent upon the terms you agree to with your lender. This is also true when it comes to the amount monthly repayment amount. The interest rate on your mortgage also plays a significant role in how much your mortgage is going to cost. In December 2021 the central bank started raising mortgage interest rates from 2.34% up to an interest rate of 6.76%.

Currently, this interest rate is standing at 5.25%. The prediction was that the interest rates would rise again, however, as of recently many lending institutions have lowered the interest rates on the mortgages they have approved a half to three quarters percentage points. This may be to encourage current and potential clients to apply for mortgages. If interest rates increase, fewer people are willing to take the risk on a mortgage, with the fear that they may not be able to afford the payment. Also, as interest rates rise, people who are already vested in a mortgage are finding it more and more difficult to make their monthly repayment. If fewer people can make their current payment, that means fewer people will be entering any kind of deals to sell their current home, find a new one, and take out a mortgage. They may sell their home due to the increased costs, but they won’t be buying again at the high-interest rate, and then who is going to buy their home when there is a decreased number of buyers in the home buying pool?

Obtaining A Mortgage

Now that you have an understanding of the different mortgage options that are out there and how much your mortgage might cost, let’s take a look at the steps you will take to obtain your mortgage.

  • First, you should already be saving for your deposit if you are reading this. If you are not buying your first home, then the equity that comes from the sale of your current home could be used as your deposit money.
  • Next, start shopping. Look at properties and find the property that will meet your needs.
  • Once you find the property you want it is time to start doing your research to find your mortgage. Remember, a mortgage broker can help you to find the mortgage that will work best for you and your circumstances.
  • As you are looking into the best mortgages, be sure that you are taking into account what your finances look like, what other bills you are responsible for paying, and what your savings accounts look like to be sure that you will be able to afford the mortgage and the terms that are being offered to you. You can get a mortgage in principle, which can help you understand how much you will be able to borrow based on the terms offered. Then swoop in and make your offer.
  • Once your offer is accepted, it is time to take the mortgage.

There will be a process that you will follow when it is time to take out the mortgage. First, you will need to gather the documents that your lender requests. These documents may include your ID, something that proves your current address, proof of your current income, and something that proves your deposit amount. Instead of payslips to prove your current income, if you own your own business, the lender will likely ask you to be able to show the last couple of years of your accounts. Once the documents are turned in to the lender, you will fill out their application for a mortgage. On the application, you will list the sales price you have agreed to and further details about the home. The next step will be to hire a solicitor. This expert will tend to the searches and the contracts, a necessary part of the process that must be done properly. Once this person has been hired, it will be time to have a home survey conducted. The home survey will give you the valuation as well as the current condition of the home, which the lending institution will require. Some lending institutions require you to request a basic condition report. Some want a more comprehensive report and others will require you to have a full structural survey. The difference among these reports is the amount of details provided. When the home survey is completed and filed with your lender, your mortgage will be approved. Upon approval, the contracts can be exchanged between the solicitors and then everything is complete and you can move into your new home.

Will You Be Approved For A Mortgage?

At this point, you may be wondering how you will know if you will be approved for a mortgage. The requirements sought by lending institutions vary somewhat. They will consider what the value of the property you want to purchase is, which is why, as mentioned above, they require a valuation to be done. They will take into consideration how small or how large your deposit is, which is why it is important to begin saving for that straight away. Your age will play a role as well. They also look at how long you want the mortgage term to be. The lender will look into your credit record to determine how dependable you will be in repaying the monthly terms. Income, of course, is a key factor in if the lender will offer you a mortgage as well as how much they will be willing to offer you a mortgage. They also take into consideration if you are applying for the mortgage just for yourself or if someone is applying with you. Two incomes are often better than one from a lender’s point of view, but if it is just yourself, and you meet all of their other criteria, then you are not knocked out for that alone.

After You Have A Mortgage

Once you are approved for your mortgage and you have moved into your new home, there will be things that you must remember. First, and foremost, remember that your monthly repayments will begin. As previously mentioned, do not miss any payments so that you do not risk a bad credit record and more importantly, you do not risk losing your home back to the bank. Most lenders offer the option to have your monthly repayment come directly out of your account. As long as you keep the monthly repayment amount in your account, with this plan you will not risk missing a payment.

To be sure you keep enough money in your account to cover your monthly repayment, it is advised to save up to two to six months’ worth of payments, other bills, and food expenses. This keeps you covered in case you have an unexpected event happen in your life that would cause you to lose wages for a short amount of time.

A Few Things To Understand As You Search For The Right Mortgage Rate

Credit Score: As mentioned before, your credit score is something that the lender considers when deciding if you qualify. Your credit score also helps to determine what interest rate you will be paying on your mortgage. High credit core means better offers from lenders. If you pay your bills on time and you are responsible for paying off your debts, you can maintain a high credit score.

Affordability: Remember that lenders look at your current income. They also look at what other bills you pay. These two factors combined help them to determine how much they can offer you for your mortgage, but they may not be taking other things you have to pay into account. As you receive the offer, be sure that you are keeping in mind that you will also need to pay property taxes and insurance on the home you are purchasing and you will be paying the costs to keep maintenance on your home. Be sure that you are going to be able to afford to repay the mortgage with monthly repayments and the other costs associated before you accept the mortgage.

Pre-Approval: You and the seller will be thankful for a pre-approval. You will be thankful because you will know what homes you can be realistically looking at. The seller will be thankful because they will know that you are a buyer with a mission and there will be less of a chance that your offer will fall through.

Homebuyer Education: The government as well as nonprofit organisations have a goal to help first-time home buyers. To do so, they offer homebuyer education courses. If you enrol in these courses, you can learn, in more detail, about the process, mortgages, what goes into a contract and how the negotiation process works.

Home Valuation: You do not want to overpay for a home. The lender does not want you to overpay for a home. This is why the lender, as previously discussed, requires the home valuation to be done. When this is done by a surveyor, the lender can be sure that the sales price matches the value of the home.

Comparing Offers: Do not settle for the first mortgage offer you receive. Compare multiple offers from different lenders, taking into account not only the interest rates but also any associated fees and terms. Consider working with a mortgage broker to help you to navigate the options available and to find the most suitable deal for you and your circumstances.

Early Repayment: While early repayment may not mean anything to you right now, it could in the future. Some lenders, in the mortgage agreement, place terms that early repayment will result in extra charges. If you were to sell your home or for any other reason decide to pay the rest of the mortgage off before the fixed period was up, then you would be liable for those charges.

Government Schemes: There are, at times, government schemes in place to help home buyers. As you begin looking into mortgage terms offered, take time to do some research to see if there are any current government schemes that might be beneficial to you.

Market Trends: Different locations have different market trends. Market trends include property values, current demand, and other economic factors. Take time to understand where you live so that your home-buying decision is an informed one.

A Few Last Words On Mortgages

Obtaining a mortgage from a lender is often necessary to be able to own a home. However, it is not a decision you take on a whim. As you consider taking that mortgage, be sure that you take the time to do your research. Understand the market trends in your area. Be clear on the mortgage terms you are willing to consider and either know where to look for them or find yourself a reputable mortgage broker to help you. It is always advisable to seek professional advice for any buyer, new or experienced, and you should talk to the professionals when you have questions regarding the home buying process, market trends, or mortgage terms. The decision you take, in regards to your mortgage, should be taken because it meets all of your criteria and it is going to help you to be on the road to where you want to end up in the future.

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