by Rebecca Young

Shop around

There is so much competition between mortgage lenders that there are real savings to be made if you shop around. If you accept the first offer you're given you will probably be paying more than you could be. So how do you go about finding the best deal? First of all you need to establish what you want and what you need. This saves you a great deal of time later when you are presented with literally thousands of possibilities. You should speak to several mortgage lenders and compare the deals they are offering. You could also make use of one of the many loan comparison websites that will search for the best package for your needs. But always check to see how wide their search is. Some of these sites only search a handful of companies, usually those who have paid to be listed. A mortgage broker will probably provide a more thorough search of the market although you will have to pay for it.

Beware of extremely low initial interest rates

If it looks too good to be true then it probably is. The only way mortgage companies can afford to give you such amazing initial rates is to make up for it in the future. You may find that when the initial rate expires it will be replaced with one of the highest rates in the industry. And if you try to switch companies to avoid this unwelcome new rate you will be hit with a large penalty which can be several thousand pounds. This is called a redemption penalty.

If for any reason you want to get out of your mortgage deal you will have to pay a redemption penalty. Some lenders don't charge anything but others can go as high as 3-4% of the existing loan. For example if your mortgage was £100,000 you would be forced to pay £3000-4000. It is not unusual for mortgage lenders to fail to volunteer the size of their redemption penalties. As long as it's buried in the small print they are under no legal obligation to thoroughly explain their policies. However, all you have to do is ask them. If they fail to give you a concise answer it's time to head out the door.