Interest rates remain low with some tracker rates having fallen to around 1% so it is worthwhile checking on your existing mortgage to see if you are paying too much. It is possible that you could be paying your lenders standard variable rate that could be anything from 4% to 5.5%, and are therefore just wasting your money on what is probably your biggest out going.
It has been estimated that one in six people are considering remortgaging in the next six months but before you do this it is worth checking the deal you are on now, and seeing if there are any penalties to move to another lender. If there are none it is worth asking your lender if they can improve on the rate you are currently paying. Even if they can it is worthwhile then looking at what the market can offer before accepting their deal.
If once you have established that your rate is not the best, consideration needs to be given to the sort of deal you want in the future. If you feel very vulnerable to interest rates rising then perhaps a fixed rate is best for you. But if you feel comfortable with the long term outlook for rates, and could afford to pay your mortgage comfortably with a few per cent increase in the payments, then perhaps a variable or tracker rate is best suited to you.
Other things to consider when remortgaging are to make sure that if you are thinking of moving house in the near future that you have taken this into account when setting up your deal. Most loans are portable to the next property but there are the odd ones that have not been. Also if you are thinking of moving would you need to increase on the amount you would port? If this is probable it would be a good idea to check how much more your new lender would advance you. If the answer is not a lot then you may want to consider selecting a lender whose rate is not as competitive, but has generally a more flexible lending policy. Obviously you can only check these things out when you remortgage, and you have to accept when you do come to move house it is possible lending policy could be different, but it is worth checking out. When remortgaging you need to look beyond the rates and make sure that you are not paying too much in fees to get your new rate, and that the fees take away the benefit of the deal.
Given that you have got the right rate with the right type of deal, fixed or variable, and it is also flexible enough for you then it is worth considering the term. If you have moved from having a £100,000 mortgage at 5.5% with twenty years remaining to 1.15% then your repayments will fall from £687 per month to £466 per month. So could be worthwhile considering overpaying your new mortgage by sticking with your existing amount but without reducing the term. Providing you have an overpayment facility, as most mortgages have, this would allow you to reduce your mortgage by 7 years. In addition if rates did rise and the going got tough, by not reducing your term you are in fact overpaying which could give you flexibility for mortgage holidays or lower payments. As always we would recommend independent mortgage advice.
Kieron Bassett DipPFS
8th June 2015
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