Interest rates are of course vital when choosing a mortgage provider. But almost as important is the longterm value for money that a lender offers, as well as its policy on a wide range of other areas.
One lender could be the cheapest in the market the week you are looking, but if it does not have a track record of being among the cheapest that may be cold comfort for the remaining 19 or 24 years of your loan.
As a result, you should look at the cost per thousand and at the APR of the lender. Ask a broker whether a particular lender has a good record. EBS, for example, was traditionally the cheapest lender, at least until Bank of Scotland arrived last year. The large banks on the other hand have only been particularly competitive in more recent years.
One good way of looking at this is to see if the lender offers a different rate to new customers than for existing customers. Many have introductory one-year offers. But different rates over longer terms or on the standard variable could spell trouble for the new borrower once they are an existing customer.
But there is also a broad range of other areas which it can pay a borrower to look at. These range from policy on penalties for getting out of fixed rates, to payment of indemnity insurance, to how the lender calculates the interest. The mortgage indemnity bond has been an issue for years. This payment is really just an insurance that the borrower pays to cover the lender if the property value falls and the house has to be repossessed. The borrower gets absolutely no value from it.
Bank of Ireland, Bank of Scotland, ICS, Ulster Bank, ACC and NIB do not charge this to borrowers but most of the other lenders do, unless a customer insists that they will not pay it.
The payment is usually based on a percentage of the difference between, say, 80 per cent of the value of the home and the percentage actually borrowed. So, for example, if a house was worth £100,000 and a couple borrowed £90,000, they would owe say 3 per cent of £10,000, as well as Government duty. The actual amount varies between institutions but the amount owed could vary from £350 to £450 on a £100,000 home.
How the banks calculate mortgage interest is also extremely important. The best way is to have it calculated daily and applied monthly or quarterly. This means that any extra payments you make are immediately credited and reduce your mortgage.
Other lenders calculate this on a monthly basis and one, Irish Nationwide, on a yearly basis. That means that any additional money put in during the year is not counted until the end.
Another issue is how the lender penalises the exit from a fixed-rate mortgage. Some lenders work this out on a cost of funds basis. In an environment of rising interest rates, this can mean it costs nothing to get out of a mortgage. When rates are falling, however, the penalty can be very high. AIB, Bank of Ireland, ACC, EBS, National Irish and TSB all use this method.
Others use a basic penalty of either three or six months' interest, which in the current environment usually works out far more expensive.
Other minor incentives may also make a difference to a borrower. Bank of Scotland, for example, will pay up to £500 towards legal fees. That can be a good incentive for borrowers thinking of remortgaging.
Others, such as Bank of Ireland, offer three months' home insurance and 12 months personal accident cover, which can be worth around £300.
