How to find the right mortgage deal

First published 18 October 2017 • Updated 08 August 2019

When you take out a mortgage, the number one question is usually, ‘How much will I have to pay each month?’ The answer depends of course on how much you borrow – but also on what mortgage deal you have.

Here you can find out more about the different types of mortgage deal such as fixed rate, tracker, capped, discounted and variable.

  1. What is a mortgage deal?
  2. How do I get a good mortgage deal?
  3. How strong is my mortgage application?
  4. Comparing different types of mortgage deal
  5. Mortgage fees
  6. Finding the best all-round deal

What is a mortgage deal?

A mortgage deal is the agreement you have with your lender, covering the initial rate of interest you will pay, and how long you’ll pay this rate for. Usually a deal will not last for the whole period of your mortgage – most deals last between two and five years, though a few do run for longer. Once your deal expires, you will still have your mortgage, but your repayments will now be calculated by the lender's Standard Variable Rate (SVR) of interest. 

How do I get a good mortgage deal?

Getting the right mortgage deal for you depends on both your attitude to risk and your circumstances, including your credit score. If you are in a strong financial position with a large deposit, or are prepared to pay a higher arrangement fee, then you should be offered a better range of deals to choose from. However, if you have only a small deposit, and cannot (or don’t want to) pay a big arrangement fee, then your choice will be more limited.

How strong is my mortgage application?

The stronger your mortage application, the more likely you are to be offered a mortgage - and the better your mortgage deal is likely to be. To qualify for a lender's very best deals, you will need a very robust application with a sizeable deposit. You can get a quick estimate of how likely your application is to succeed by using our Mortgage Checklist tool. This is a simple and free way to check how ready you are, and because it doesn't run a credit check on you, it won't affect your credit file.

Comparing different types of mortgage deal

The risk when taking out any mortgage is that interest rates may rise in the future, increasing your monthly repayments – perhaps until you can no longer afford them. This is why many buyers try to limit their risk through their particular mortgage deal. Timing is also very important – for example, there are times when a tracker mortgage is a better choice than a fixed-rate, and vice versa.

Here are the main types of deal available, and their pros and cons.

Fixed rate

Risk: low

Suitable for: First-time buyers, more cautious people

With a fixed-rate mortgage, you know exactly how much interest you will pay for the length of the deal period. The only downside is that if mortgage rates fall, you will be stuck paying the same rate of interest. Once a fixed-rate deal ends, the interest you pay will switch to the lender’s SVR, which is typically higher and also far less predictable. At this point, you may decide to try and remortgage to get a new deal.

Tracker

Risk: Medium

Suitable for: People willing to take more risk and pay more if necessary, in exchange for the chance that they may end up paying less.

A tracker mortgage moves in line with an external interest rate (usually the Bank of England base rate), and may be set slightly higher or lower. The main advantage is that it falls when the tracked rate falls, but on the downside there is no limit to how high it can go. Tracker mortgages are most popular when base rates are high but falling, or likely to fall in the near future (because no-one wants to fix their mortgage at a high rate).

Discounted

Risk: Medium-high

Suitable for: Those looking for the lowest rates, but who could afford to pay more and can cope with unpredictability

Discount mortgages may offer some of the lowest rates available, so can be very attractive initially. However, the discounted period is limited, and the mortgage tracks the lender’s SVR rather than the base rate. This can mean rate rises are higher and far less predictable.

Variable

Risk: High

Suitable for: Those who could afford to pay a lot more if necessary, or those unable to obtain any other kind of deal

Variable mortgages follow the lender’s SVR, which may rise even if the Bank of England’s base rate does not. Initially interest rates may be affordable, but be aware that these can rise significantly and without warning.

Offset

Risk: Medium

Suitable for: Those with variable income but substantial savings

Popular among self-employed people and those whose income fluctuates, an offset mortgage is a special kind of deal that lets you use your savings as a kind of ‘counterbalance’ to your mortgage. You keep your savings in a special account run by your mortgage provider, and the amount is subtracted from the amount of your mortgage on which you have to pay interest. So if you have a loan of £150,000 and there are £20,000 in savings, you’ll only pay interest on £130,000.

Offset mortgages may also be a way for parents to help their children obtain a mortgage.

What about mortgage fees?

When taking out a mortgage you will have to pay fees – ranging from quite small to very substantial, depending on the deal being offered. Types of fees may include:

  • Arrangement fee – this is the biggest variable. Some mortgages have no arrangement fee, while others run to a few thousand pounds. Some buyers add this fee to the mortgage if they can’t spare the cash up front – but if you do this, you’ll pay more over time due to interest.
  • Booking fee – when you agree a deal, you often have to pay a fee upfront to secure it. Expect this to be between £100 and £200.
  • Valuation fees – this is a standard check your lender will carry out on the property to make sure it’s worth the price you are paying for it. The cost of this is about £300. Note that although this valuation is a type of survey, it is no substitute for hiring your own surveyor.

If you are buying your next home, you may have the option of keeping your current mortgage, and so may be able to avoid these set-up fees.

Finding the best all-round mortgage deal

As you can see, there are lots of factors to balance out when looking for the best mortgage deal. An independent mortgage adviser can explain all your options to you, help you weigh up the pros and cons, tell you how much you’ll be paying now and if interest rates rise, and enable you to make a truly confident choice. Most importantly, they can search the whole of the market to find the best deal for you, and maximise your chances of your application being accepted.

Here you can see some real-life mortgage advice in action:

Read more about different types of mortgages and the other costs of moving.

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About the author
Nick Green
Nick Green
Nick Green is a financial journalist writing for Unbiased.co.uk, the site that has helped over 10 million people find financial, business and legal advice. Nick has been writing professionally on money and business topics for over 15 years, and has previously written for leading accountancy firms PKF and BDO.