With too much information out there to handle, and too many interest rates to compare, it is hard to know where to look for the best interest rate and which ones you should be prioritising.
When you watch the television or walk down the high street you will often see lots of different rates advertised for ISAs and savings accounts, but not so much for mortgages. The reason for this is we are attracted to the higher rates and we are more aware of what’s good and what is not, so the banks can draw us in by showing these good rates to us. You could spend hours looking for the best ISA rate available which could be a relatively small amount, compared to that of your larger mortgage.
The maximum you are able to invest into a cash ISA in the current tax year is £5,640, and all of the good rates are within around 1% of each other, meaning the time you spend looking for the best one to invest into a brand new ISA can only benefit you by around £60 a year.
On the other hand, your mortgage will probably be the biggest debt you will ever have, and is the most important of all your finances to keep an eye on. Mortgage interest rates can vary widely, and the rates offered by one bank compared to another can quite easily be over 1.5% lower. If you have say, a mortgage of £100,000 and do find a mortgage which is 1.5% lower, that equates to £1,500 per year. So, if you do look for the best ISA rates every April, yet don’t pay any attention to which mortgage you take out, or you don’t search the market when you come out of your tied-in period, think about utilising your time better, and look after the big things first.
The reason why it is tempting not to do so is a psychological one. We like to make money, and we don’t like losing it, so we enjoy managing our savings more than we do our debts. Also, savings are easier to understand. They work by giving a bank or building society your money, and they pay you interest in return. With a mortgage, you need to think about many things such as the fees involved, whether to take a fixed or variable rate, how long you want your mortgage over, how much is your home worth and many more options. It isn’t crystal clear at first which is the right answer for you, and where you should turn to in order to make sure you get the best deal, but if you take one step at a time and speak to the right people, you will get there.
Firstly, you should speak with an independent financial adviser to discuss your situation and needs and they can show you the best deal available from the whole of the market. Next, make sure you ask your current lender if there is anything they can offer you. They may be able to give you a beneficial rate or waive any fees because they want to look after their existing clients, and it is cheaper for them to keep hold of an existing customer than pay administration costs and fees to get a new one. Also, if you stay with your current lender, you won’t need to pay a redemption administration charge for leaving them. Next, you should ask your bank what they can offer you. Your bank knows you and your finances and wants you to keep banking with them, so they can offer special rates which aren’t available through brokers. Finally, go back to your independent financial adviser so they can either arrange the best mortgage they can find you, or make sure if the deal which your existing lender or bank offer you is as good as it may first appear.
Kieron Bassett Financial Services has two Independent Financial Advisers who specialise in mortgages. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or visit www.kieronbassett.com.
Jason Hinde DipPFS
14th May 2012
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