You have decided to buy your home. How do you chose a mortgage?
In terms of process, the market for mortgages is changing all the time and we can't guarantee we'll keep up. Plus it's extremely well covered by the standard independent advice sites. But here are some fundamentals.
The things that matter are:
- Interest rate
- Repayment terms
- Ability to vary either the above
- The small print
Guess which are the most important? No, it's not the first two. It's the last two.
The importance of options
A mortgage is a contract between two parties: you and the lender.
- If the contract allows a variation in any clause at your choice, that's good for you.
- If the contract allows a variation in any clause at the option of the lender, that's good for him.
Any option is a form of insurance. It allows the holder to take actions in the future dependent on what the future holds. That's worth money to the holder. For example if you have a fixed rate mortgage with your option to repay after 15 or 30 years, that allows you to take a decision in your favour after 15 years depending on:
- whether or not interest rates have moved in your favour, and
- whether or not your financial situation makes repayment a better use of your money
Your lender is only human if he tries to load these things in his favour - indeed makes them his main source of profit. Any fool can compare two interest rates. Evaluating options is much harder.
The problem is...
These things have a value in the financial options markets but you don't know what that is, and actually you don't care. This is insurance, either bought or sold. Only you can decide what is right for you - whether the flexibility given or taken is worth the headline differences in rate or term.