You have a couple of different options when applying for a mortgage. You can go directly to lenders or you can work through a mortgage broker. Understand that in the UK, a mortgage broker is not just someone who arranges deals between lenders and borrowers. A mortgage broker is a financial adviser with specialised experience in the mortgage market.
This dictates that working with a mortgage broker gives you access to free advice along with all the help you need to arrange a mortgage. Best of all, that advice is free for you. We love free stuff, so why would a person not take advantage of the services of a mortgage broker?
If you are thinking about buying a house, seriously consider using a broker instead of going directly to the bank. Below are four reasons you cannot afford to ignore the free advice a mortgage broker offers:
1. Interest Rates Make a Big Difference
The first reason is a simple fact that interest rates do make a big difference. Do not fall for the idea that a percentage point here or there doesn’t really make a difference. It does. In fact, interest constitutes the single biggest cost of borrowing.
Based on the free mortgage calculator offered by the Money Advice Service, buying a £150,000 house with a £30,000 deposit and a 25-year mortgage of 3%, your monthly payment would work out to £569.05. That works out to a total of £170,715. You are paying £50,000 in interest alone.
Now let us calculate the same mortgage at 3.5%. Just a half of one percentage point increases your monthly payments to £600.75. That works out to a total repayment of £180,225. That is nearly £10,000 more in interest. Isn’t it amazing how much difference even a half percentage point makes?
2. Lender Products Are Limited
Next, you should know that lenders are limited in the mortgage products they offer. A typical bank or building society only has two or three mortgage deals to offer. That may seem like plenty, but it pales in comparison to the dozens of deals mortgage brokers have access to. And considering how important interest rates are, having access to a larger number of offers gives you a better chance of finding the most attractive rate.
Go directly to a bank or building society and you’ll be left to choose from a small number of deals that only benefit them. Go through an online mortgage broker – or visit a broker’s office if you prefer – and you’ll discover that your broker has many more choices. He or she even has access to deals that are offered only through brokerages.
3. Getting the Best Deal for You
As previously mentioned, mortgage brokers in the UK are financial advisers. They do more than just help you arrange a mortgage. They help you find a deal appropriate to your financial circumstances. They help you get the best deal for you. This is the biggest difference between mortgage brokers and lenders.
Banks and building societies are concerned only about affordability. They operate from the perspective of their own interests, irrespective of how those interests affect you. And while they still must verify affordability, they do not have to look at a customer’s overall financial picture to determine how a mortgage will affect that person’s finances. So they don’t.
A mortgage broker is just the opposite. He/she does his/her best to find a deal that not only is affordable but also works well in helping you achieve your financial goals. The advice this person offers is advice you are never going to get from a loan officer.
4. Advertised Rates Are Misleading
Finally, understand that advertised rates you find online or in adverts are misleading. First of all, there is a difference between interest rates and APR. The APR (annual percentage rate) accounts for all of the costs of borrowing. It is not limited to interest only.
Second, lenders are only required to offer advertised rates to 51% of their applicants. That doesn’t mean all those applicants will be approved. Furthermore, it means the remaining 49% can be offered higher rates. Just because a bank or building society offers a specific rate, doesn’t mean that’s the rate you’re going to get.
When you are working through a mortgage broker, you’re not worried about advertised rates because you are not searching for the deal. Your broker is doing it. You can rest assured your broker will offer you the best choices he/she can find.
This post has given you four reasons you cannot afford to ignore the free advice mortgage brokers offer. If you are going to buy a house, do not go directly to a lender in search of a mortgage. Use a mortgage broker instead. You will be better off for it.