5 tricks for getting the best mortgage rate

What might stop you from getting a great mortgage deal? Alice Guy investigates and reveals 5 tricks for getting the best mortgage rate.

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Smiling mortgage couple

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It’s not fair: the best mortgage rates aren’t available to everyone. If you have a lot of equity and are already on the housing ladder, then you’ll probably be offered a great mortgage rate. But if you’re a first-time buyer or don’t have much equity, then you might miss out. It’s especially annoying when everyone else seems to be getting a better deal than you.

Here, I take a look at five tricks for getting the best mortgage rate and saving some serious cash.

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1. Shop around to get the best mortgage rate

Shopping around for a great mortgage rate could save you thousands in the long run. Just a 0.1% difference in interest rate could save you £200 per year in interest on a £200k mortgage.

It’s tempting to stick with a mortgage company you’ve used before or to just check one comparison website. Let’s face it, shopping around for mortgages isn’t as exciting as house hunting! 

But snagging a great mortgage deal is worth the hassle because it can save you so much money in the long run. 

2. Pay the biggest deposit you can afford

Getting the best mortgage rate is easier if you have a big deposit. Lenders will usually give you a better deal if you have at least a 10% deposit. And even better rates are available if you have a 30% or 40% deposit.

If you’ve set money aside in savings to pay for home improvements or a new car, then it might be worth going all-in on the deposit instead. If you can bear to wait to upgrade your new kitchen or car then the boost to your deposit might help you snag a great mortgage rate.

However, don’t strip the savings cupboard completely bare. It’s a good idea to have an emergency fund to cover unexpected bills.

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3. Keep your options open to get the best mortgage rate

If you’re housing hunting and only have a mortgage agreement in principle, then this next tip is for you.

Did you know that a mortgage in principle isn’t binding and you can still carry on shopping around for the best mortgage rate? Mortgage rates change all the time, so there may be better deals now than there were when got your agreement in principle.

This is where it’s worth knowing the difference between an agreement in principle and a mortgage offer:

  • An agreement in principle is required by many estate agents before they will accept a house offer. Agreements in principle are usually valid for between 60 and 90 days and aren’t a formal contract. It means the mortgage company will probably lend to you based on your earnings, credit history and level of deposit. 
  • A mortgage offer is a binding contract where the mortgage company performs a full affordability check and agrees to lend you money to buy a particular property based on their valuation report.

It’s worth keeping an eye on new deals if you only have an agreement in principle. But it might not be worth it if you’re further on in the process. You may incur fees if you change mortgage providers once you have agreed to a mortgage offer.

If you only have an agreement in principle and you decide to approach another lender, then bear in mind that some lenders run credit checks when they assess you for an agreement in principle. It can affect your credit rating if you keep applying for mortgage deals.

4. Take steps to improve your credit rating

Lenders will often give their best mortgage rates to customers with great credit ratings. It’s worth getting hold of your credit report and checking your credit rating. There might be some simple steps you could take to improve it.

5. Reduce your debt

Paying off or not taking on new debt can help you get the best mortgage rate. That’s because lenders check whether you will find repayments affordable when they assess you for a mortgage.

If you can afford to pay off your car loan or credit card, then it may help you get a better mortgage rate. It might also make sense to transfer your credit card balance onto a 0% card so that you reduce your interest payments.

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