How to Save a Lot of Money on a Mortgage or Remortgage

Written by Karen Bryan

Imagine you are looking to buy your first house but don’t know where to turn for a mortgage. Your estate agent recommends a high street bank or your local building society. A friend suggests you turn to a mortgage broker instead. What do you do?

There are plenty of good reasons to go directly to lenders in search of a mortgage. The same is true for re-mortgages. But when you are talking specifically about financial considerations, mortgage brokers tend to come out on top for one simple reason: they can save you a lot of money.

Your bank or building society may only offer one mortgage or remortgage deal. If they offer two or three, that would be a lot. But visit that mortgage broker on the other side of town and you are likely to hear different story. If this mortgage broker suggests he/she can look at a dozen different deals, you suddenly have more choices to work with.

Why Mortgages Cost Money

To understand how a mortgage broker can save you a lot of money, it is important that you realise just why mortgages cost you something. Remember that all forms of borrowing come with costs included. If you are borrowing £100,000 to buy a house, you will pay interest on that money. But that’s not all. There are also costs associated with underwriting a loan, processing it, managing payments, etc. You pay all of those costs.

When a bank or building society advertises an annual percentage rate (APR) they are advertising a rate that covers all of the costs of borrowing – from interest to early repayment fees. Because interest only makes up a portion of the APR, interest rates are always lower than APRs themselves. You want your mortgage broker to not only find the best interest rate, but also the best APR as well.

Competition is a Good Thing

The big thing about mortgage brokers is that they represent multiple lenders. Some are tied to a small number of financial institutions whose products they represent. But a truly independent mortgage broker has access to just about every mortgage deal out there. A broker looking for a mortgage or remortgage on a client’s behalf gives lenders an incentive to compete. And in the mortgage industry, competition is good.

Mortgage lenders want your business. They will compete to get it. A broker’s job is to get your application out there to as many lenders as possible in an attempt to get those lenders to solicit offers. Your broker then chooses the most attractive offers to present to you.

Now, let us say your broker comes back with five or six different possibilities. Your building society only offers one. Which party do you think gives you the greatest chances of getting the best possible deal? The mortgage broker, of course. The broker has five or six competing offers. Within that competition you will find lower interest rates, lower fees and charges, etc.

Broker-Only Mortgage Products

The other thing we cannot forget is that brokers have access to mortgage and remortgage products you will never find at a bank. These are products offered by private lenders exclusively through the brokers they do business with. They are essentially broker-only mortgage products used to entice broker business.

If you think these exclusive deals might be better than bank deals, you are correct. They often are. By offering deals exclusively through brokers, lenders are creating a line of business that cannot be matched by banks and building societies.

Save on Almost Everything

So, on what can you actually save by going through a mortgage broker? You can save on all of the costs related to mortgaging or remortgaging your house. We start with interest rates. Just one half of one percentage point can make a difference of tens of thousands of pounds over the life of a loan.

You could also save on mortgage application fees, underwriting fees, and so forth. Best of all, you are not paying the mortgage broker for his or her services. Those services are free to you as your broker gets paid via a commission from the lender. That means you get free assistance and advice in your search for the best possible mortgage.

A mortgage broker may not be the right option for every buyer. But if it is the right option in your case, you could save a lot of money by working through a broker instead of going directly to banks and building societies. At least think about it if you are looking for that first mortgage or a remortgage product.