What Can Happen When You Don't Compare Home Loans
We frequently mention in our blog posts the need to compare home loans before you sign a deal. Comparisons are equally important whether you're looking for a first-time mortgage, a remortgage, or a secured loan for home improvements or debt consolidation. Comparing different offers is the only way to know for sure that you're getting the best deal.
When you compare home loans, you are looking at numerous things including interest rates, fees and charges, terms, early repayment penalties, and LTVs. If you don't know what some of these things are, your comparisons may not yield the most helpful information. We encourage borrowers to learn the definitions of any loan-related terms they don't understand.
With that out of the way, three things can happen when you don't compare home loans. All of them can be avoided simply by looking at multiple loan offers side-by-side.
You Pay More Interest Than You Should
The easiest thing to compare between home loans is the rate of interest. Lenders advertise interest rates based on annual percentages, thus the APR number you see in loan offers. The annual percentage rate is the rate of interest you pay over a 12-month period. For the easiest maths, an interest rate of 12% means you would pay 1% every month for a year. If your total interest for 12 months came up to Â£1200, you would be paying Â£100 a month interest.
If you don't compare home loans, there's no way to know how the interest your lender wants to charge you compares to loans made by other lenders. This could mean you're paying more interest than you really should just to borrow. That's not that clever in the grand scheme of things.
You May Face Early Repayment Penalties
British bankers are notorious for not being happy about customers repaying their loans early. Therefore, it's not unusual for them to attach early repayment fees to their loans. These fees are designed to recoup at least some of the interest lost when a customer doesn't carry a loan to its full term.
By law, lenders are required to disclose early repayment penalties along with all other fees and charges prior to the customer signing a loan deal. When you compare home loans, be sure to read the fine print thoroughly. Otherwise, you may miss the fact that there are early repayment penalties attached.
The Total Cost of Borrowing Is Too High
Borrowers pay for the privilege of getting money from lenders. They pay via interest and the various fees and charges assessed to their loans. The total amount of money spent is known as the total cost of borrowing. This is something you should definitely pay attention to when you compare home loans.
Not comparing the total cost of borrowing could mean you're spending too much on a loan, even though that loan is advertised as a cheap deal. For example, a lender might offer a loan with an extremely low interest rate and very few fees and charges, giving the impression that it is a cheap loan with affordable monthly payments. But just by extending the term of the loan by a couple of years, the lender actually ends up charging more money over the life of the deal.
It is important to compare home loans before you agree to borrow. Comparing helps you better understand different loan offers and their ultimate cost to you. In the end, the goal is to spend as little as you have to in order to borrow. It's nearly impossible to do that without comparing.
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