Have you got an existing mortgage? Then it’s well worth checking to see whether you can remortgage your home to save money now.
It might well pay for your next summer holiday.
Despite the uncertainties that Brexit has caused, 2017 so far is the best year yet to remortgage.
That’s because lenders have slashed fixed-term and tracker rates in the past two years to record lows. The average rate on a two-year fix was 2.3% at the end of February, according to Moneyfacts.co.uk. That’s against 2.6% a year ago.
Remortgage before You Fall into the SVR Trap
Are you on a standard variable rate (SVR)? Or about to go on one because your fixed, discount or tracker mortgage is due to end? Then chances are you’re missing out on the best deals around right now.
Letting your mortgage lapse to the SVR could be an expensive mistake if your fixed-year deal ends and you don’t take action. That’s because most lenders put their SVR at a much higher rate than the Bank of England base rate.
It’s estimated that as many as four in 10 mortgage holders are now forking out their lender’s SVR. Are you one of them?
Let’s put the cash difference in perspective if you’re thinking of remortgaging your home to lower your outgoings.
The latest Bank of England figures put the average SVR at 4.49%, although they can be as high as 6%. Put that against the average quoted two-year fixed rate of 1.42% for borrowers with a deposit of 25%. Does that make the penny drop for you?
Cover the Cost of Your Summer Holiday by Remortgaging
To help you understand, let’s look at what the difference could mean for your monthly costs.
Say you’ve a £200,000 repayment mortgage over a 25-year standard term length. And you plump to stay on the SVR at the end of your two-year fix. Then your monthly repayments will go up by an average £163 according to moneyfacts.co.uk. That adds up to £1,965 a year.
That’s well over the average £1,300 cost of a summer family holiday for four.
That’s without spending money.
This difference between SVR and other types of mortgage rates has soared since 2014. It’s down to the lower base rate which means competition between lenders has deepened.
But can You Afford to Remortgage?
All this makes it sound as if you can’t afford not to remortgage. But before you do, you need to check if you can afford to…
Maybe you got a mortgage five or 10 years ago easily. Today, though, you might not reap the rewards of today’s low rates. Not if you don’t get through lenders’ new tough affordability tests that began in 2014.
The government introduced these to make lenders work harder to show borrowers could afford their mortgages. Some lenders today put you through “stress testing”. This is checking your ability to pay under imaginary future interest rates rises of up to 7%.
It’s not all gloom and doom though. It’s well worth shopping around. Most lenders use affordability calculators to work how much they’ll lend. The figures vary a lot. Some lenders still offer couples up to five times salary mortgages. That’s as long as they’ve a clear credit history and limited personal debts.
There’s a whole lot more that goes into the criteria that decides whether you’ll get the remortgage rate you want. Your employment status and credit score are part of the picture. So is the size of the remortgage you’re after.
Get the Answers via a Remortgage Broker
There’s rarely been such an overwhelming choice of remortgage options on the market as now. And finding you way though the maze of offers and the different acceptance criteria can be tough.
So, first get a good grasp of what’s out there via the best buy tables or comparison sites. Then it’ll probably save you time and money to go to a good mortgage broker.
Mortgage brokers will save you putting in wasted applications and getting rejections. That’s because they can quickly check all the mortgage deals across the market. They know the different credit scoring and affordability criteria that lenders want too.
“A good mortgage broker can be a powerful weapon,” says Martin Lewis of Moneysavingexpert.com. “They’ll be best able to match you up to a remortgage you’ll get accepted for.”
In most cases, that’ll be one that saves you money too. And sunny thought, even cover the cost of your next summer holiday…