The cost of mortgages has never been lower so it is worth reviewing your loan arrangements as it is possible you could make significant savings. To begin with borrowers need to understand how their own mortgage works before looking at the rest of the market.
If you are on a lenders standard variable rate it is likely you will be able to source a better rate. If your mortgage is in theory a standard variable rate but with a link to the bank base rate more care needs to be taken when considering a remortgage. For example lenders such as Nationwide Building Society, Lloyds and the Woolwich were linking their standard variable rate to base rates before the financial crash, and were typically charging base rate plus two percent. At the time these rates were not overly generous with base rates at 5%, but now they are certainly good value with the base rate being so low, and they are guaranteed to remain at this differential throughout the loan. Also if you are tied in with your lender it is worth checking against current rates that are likely to be lower and take independent advice to see if it is financially viable for you to switch by paying the penalty.
If you want to explore switching, the first port of call should be your own lender to see what deals they can give you, as well as establishing roughly what you think your house is worth. The lower loan to value you can establish, the better the deal you can obtain. It is worth considering using some of your savings to bring the loan to value down. For example; a few hundred pounds could bring your loan into a lower bracket and make a significant difference to your repayments.
The mortgage deals available at the moment are highly competitive with the Coventry Building Society offering rates at 1.89% that is a discount rate for the term of the mortgage with the maximum loan to value being 65%. Fixed rates are also at record lows with five year fixes being below 2.5% and ten year fixes as low as 2.94%. These rates are low enough to possibly tempt people away from base rate related variable rates, particularly if they are looking for security of payment.
Hopefully you will find that by remortgaging, your payments have dropped significantly and rather than taking this drop it could be worth keeping your payment the same and shortening your mortgage term. To keep flexible it is often worth overpaying but not shortening your mortgage term officially, allowing you flexibility to take mortgage holidays or drop payments if the going got tough in the future. Other ideas to help you benefit from lower rates are too keep payments the same and take extra money to fund home improvements or debt consolidation. In all cases it is worth taking independent mortgage advice to ensure that you do the right thing and obtain the best rates.
Kieron Bassett
16th February 2015
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