Should I switch my MORTGAGE?
For a long time, interest rates have been very low – but they have recently started to go up and may well continue to do so. So if you’re on a variable rate or tracker mortgage, it’s worth considering whether you would be better off on a long-term fixed rate. This will ensure your monthly repayments stay the same for a set period, no matter how much interest rates rise.
Right now, there is not much difference between the most competitive five-year fixed rates and two-year fixed rates, says David Hollingworth, a director at L&C mortgage brokers. As a result, he says more people are fixing for five years or even longer. This strategy can save you a lot of money, as it means you will not have to pay all the fees associated with a new mortgage – which easily add up to over £1,000 – for at least five years. It also gives you peace of mind that your payments will not increase for a longer period and enables you to benefit more substantially from the low rates available now. It’s very important to note, however, that you are likely to be tied into that mortgage for the period of the deal, with early repayment charges to pay if you want to remortgage or pay off your mortgage in full.
A WARNING
Also, bear in mind that although many deals are advertised as portable, allowing you to move house and stay on the same mortgage, it’s not guaranteed that you will actually be allowed to do this when push comes to shove. ‘You’ll still have to be able to show that you meet the lender’s affordability criteria at that point,’ says David. ‘The property you want to move into might also not fit with your lender, or you might need to borrow more to buy a more expensive property – and find that your current lender is not prepared to lend to you.’ This will be a tricky problem to solve, as you cannot easily go to another lender at that point. As a result, it’s best not to fix for five years or longer if you think there is a good chance you will want to move house, pay off your existing mortgage or remortgage during that period.
SHOP AROUND
If you’re tied into a mortgage deal that ends in seven months or sooner it’s worth shopping around now for a mortgage. With rates going up, this can be a savvy thing to do; otherwise, by the time you come to remortgage, the
range of deals on offer may be more expensive. ‘You can lock into a deal up to six months in advance,’ says David. ‘Last October, mortgage rates were below 1%, but now they are 2.5%, or even higher.’
To get the best deal, it’s worth consulting one of the larger independent brokers, such as L&C or Coreco. They compare hundreds of mortgages and will liaise with the lender to speed up the process as much as possible. Some will charge a fee of around £500 or more for their advice, while others take a fee from the lender and charge you nothing. L&C won’t charge, and Coreco will waive its usual £495 fee for Good Housekeeping readers up until 30 November (call 020 7220 5110 and say you’ve read this article).