Are you paying too much for your mortgage?
MORTGAGES are the pelicans of the financial world – seriously big bills. So if you languish on a bad deal it’s very likely to be your biggest waste of cash too. Brexit uncertainty may loom large, but mortgage rates are still pretty near all-time lows, so it’s an opportune time to check if you can undercut your current deal. This is especially important if you’re one of the two million people sitting on a lender’s standard variable rate (SVR).
STEP 1: FIND THE FACTS ABOUT YOUR CURRENT MORTGAGE
DIG out the details of your existing deal, and see if it’s worth remortgaging (ie, switching to save). You’ll need to know…
a) What’s the rate? Plus monthly payments and outstanding debt.
b) What type is it? Fix, tracker, discount, SVR.
c) When is the intro deal over – ie. when exactly does the two-year fix finish?
d) How long is the full mortgage term? When must it be fully repaid – in 10, 15, 25 years?
e) Will I be penalised? Are there any early repayment/exit penalties?
WORK out your current loan to value (LTV) – the proportion of your property’s current value that you’re borrowing. Eg, £90,000 on a £100,000 property is 90% LTV. For each 5% your LTV drops, usually until 60%, the cheaper the deal. So if your home has increased in value since you got your mortgage, you may gain. Full help on this in my free remortgage guide money savingexpert.com/remortgage
STEP 2: BENCHMARK THE CHEAPEST RATES
START with a comparison site that includes all deals, including ‘direct only’ – those that aren’t offered by a broker. You can use my comparison at moneysavingexpert.com/ mortgagebestbuys and sites such as moneyfacts.co.uk
STEP 3: CALCULATE HOW MUCH CHEAPER A NEW DEAL IS
A GOOD way to compare mortgages is to divide the fee across the discount or fixed period. So a £1,200 fee on a two-year (ie, 24-month) deal is £50 a month – then add that to the monthly repayment (my best buys tool above does this for you).
For smaller mortgages it’s worth checking if your existing mortgage provider has a cheaper deal; as it may have no fees for shifting to it.
There’s a calculator to compare two mortgages at moneysaving expert.com/mortgaegcalc
STEP 4: THINK ABOUT WHETHER YOU’LL BE ACCEPTED
THIS can be tricky – there are two factors...
■ Are you creditworthy? Your credit history is a huge part of whether you’ll be accepted for any type of credit, including a mortgage. ■ Will you pass affordability
checks? Lenders won’t just check if you can afford the monthly repayments at the current rate, but they’ll also stress-test affordability if rates were 6% or 7%.
So it’s really important you reel in your spending months before applying, as lenders will want evidence of income, big bills, expenses and even eating out.
STEP 5: CONSIDER USING A MORTGAGE BROKER
BROKERS can match you to the right deal, as they have access to info that consumers don’t, such as credit-scoring and affordability criteria. They also have access to different deals than are offered directly to borrowers.
For face-to-face help ask friends for local broker recommendations or use Unbiased.co.uk or
Vouchedfor.co.uk to find one.
There are fee-free brokers, who just take a commission from the lender, available on the phone such as
WON’T BREXIT IMPACT INTEREST RATES – SHOULDN’T I WAIT?
FORGET predictions about what will happen – no one knows.
What we do know is new mortgage rates are still cheap, and there’s more room for them to rise than drop. So if certainty is what matters to you, get a cheap fix now, and the more you want certainty, the longer you should consider fixing.
Generally you pay a little more to fix, but not much. I’m not saying that with hindsight it’ll be the cheapest route, just that you’re far less subject to huge economic winds as well as price and budgeting certainty.
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