Lockdown might have distracted us all from our long-term financial plans, particularly when it comes to our mortgage. According to new research by Experian, almost half of homeowners in the UK are currently on their provider’s Standard Variable Rate (SVR), which means their repayments are much higher than they need to be.
While taking a mortgage payment holiday could be a short-term solution for saving money, getting the best deal on your mortgage is more important in the long run. If you’re one of the 46% of people on their lender’s SVR, or your deal is coming to an end soon, you could save thousands by remortgaging. Read on to find out how.
You could pay more if you stay with your current lender
After your fixed, tracker, or discount rate mortgage deal ends, you will typically transfer on to your lender's SVR. They can adjust this rate freely, although they tend to follow the Bank of England's Base rate movements.
However, your lender’s SVR will almost always be higher than the mortgage deals available in the market.
According to Experian
, the average SVR is 4.44% right now, while Moneyfacts
reports that the average two-year fixed rate mortgage rate stands at 2.24%. Paying 2% more than you need to could cost you hundreds of pounds more each month.
The amount you pay could also change at any time because, as the name suggests, your lender's SVR is variable. If they decide to increase the rate, you could unexpectedly have to pay more.
How to save money by remortgaging
New research by Experian
suggests that you could save up to £5,000 by switching to a new fixed-rate deal rather than staying on your lender’s SVR.
For example, if you have a £150,000 mortgage loan with 20 years left to run on the average SVR of 4.44% your monthly repayments will be around £944.
The same mortgage on a two-year fixed rate remortgage deal at a typical interest rate of 1.14% will cost around £699 per month. This is a saving of £245 per month, or £5,880 over the course of your two-year deal.
Because your mortgage rate is fixed, your repayments also won’t change for the duration of the deal. This means you have the peace of mind that your payments won’t rise for two years, irrespective of what happens to interest rates. You’ll also know exactly how much you’ll need to budget for your mortgage.
To maximise your potential savings, you should always shop around to find the best deals for you. Compare how much you’d pay on your lender’s SVR to the deals that are available from other lenders to find out just how much you can save.
Finally, if you remortgage now, you might benefit from getting a better deal if the value of your home has increased.
According to the Halifax House Price Index, house prices are at a record high. When you come to remortgage you could therefore find there is more equity in your home, and you could be eligible for better mortgage rates.
We’d normally recommend that you start shopping around at least three months before your existing deal expires, otherwise you may find the process hasn’t completed before you revert to your lender’s higher SVR.
Don't just take a deal with your existing lender
Note that your lender may also contact you as you near the end of your deal.
Many lenders have products designed for existing borrowers, and these will generally be more attractive than doing nothing and going on to your lender's SVR. However, while these rates may be lower than their SVR, they may not be the best deals on the market.
Don't just take the first deal your existing lender offers you without shopping around. There may well be a much better deal available with another lender.
Account for additional costs
When you're working out how much a new deal could save you, remember to consider any fees or charges involved in switching your mortgage.
You're most likely to pay an arrangement or booking fee for your new mortgage, as well as valuation and solicitor's fees. Some lenders cover valuation and solicitor’s fees as part of the mortgage deal, so look out for offers like this.
You may also have to pay an Early Repayment Charge (ERC) if you switch from your current mortgage before your deal has ended. The cost usually ranges from 2% to 5% of your outstanding loan, so be sure to check that you won't pay any ERCs when you switch.
Ask for advice
An experienced mortgage broker can make the remortgaging of your home a cost-effective and stress-free process.
We will scour the market to find the best deals and take the fees and costs of remortgaging into account to work out which deal offers you the best savings. We’ll even find a lender who will agree your application, so you don’t have to worry about multiple attempts to secure a loan affecting your credit score.
If your current mortgage deal is ending soon, contact us for advice on remortgaging. Call us on 03300 583 859 to find out more.
Please note: Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.