Given the mortgage is most people’s biggest monthly outgoing, it makes sense to keep payments as low as possible. With mortgage rates competitively priced, there should be a good deal out there to tempt you to remortgage.
While it’s important to search for the best deal when you originally take out your mortgage, if you don’t review it on a regular basis, you may end up paying much more than necessary.
If you are coming to the end of your fixed or discounted rate, it is a good time to consider your next move. If you do nothing, your mortgage will revert to your lender’s standard variable rate (SVR), which will invariably be considerably higher than the rate you are paying, so your monthly payments will increase. Likewise, if you haven’t remortgaged in a while and are already on the SVR, you are probably paying more than you need to.
If your home has increased in value since you took out your mortgage or last remortgaged, you may also be able to obtain a better rate as your loan-to-value (LTV) will have fallen. This is the amount of mortgage borrowing in relation to how much your home is worth – if your LTV is lower, you will pay a cheaper rate because lenders regard you as being less risk.
When to remortgage
Planning ahead enables you to get the best outcome. It means you won’t slip onto your lender’s SVR while you wait for your fixed rate, or whatever deal you have chosen to move onto, to come through. Six months before your current deal comes to an end is not too early to start thinking about a new mortgage as many offers are valid for up to six months.
This means you can secure a new deal and get everything lined up with plenty of time to spare, saving you money and ensuring you don’t pay more than you need to. This is particularly useful when mortgage rates are rising, as you may be able to secure a lower deal than you would have done several months down the line.
Alternatively, if rates have fallen by the time it comes to switch onto your new deal, you can move onto the cheaper rate available at the time, so you don’t miss out on any savings.
What type of remortgage to choose
There are a range of mortgage deals available – fixed, tracker and discounted-variable rates. The one you choose should depend on your own circumstances and attitude to risk.
Fixed rates
Fixed-rate mortgages give you a set monthly payment every month for the term of the fix. Many borrowers tend to opt for a shorter fix, giving them some security while not tying them in for too long.
A fixed-rate mortgage makes sense when interest rates are rising. However, if interest rates were to fall in the future, a tracker or discounted-variable rate would enable you to take advantage of this.
If you don’t have much spare cash and would struggle with higher mortgage payments, it might be wise to stick with a fixed rate.
Base-rate trackers
The main alternative to a fixed rate is a base-rate tracker. This tracks the Bank of England base rate plus a margin above it. If interest rates fall, so do your mortgage payments because they are directly linked, although most lenders have a ‘collar’ in place when rates drop so payments will only fall so far.
However, the alternative is also true; if rates rise, then so will your mortgage payments.
Discounted-variable rates
These are not as common as in the past and are mostly available from building societies. They are a discount to the lender’s SVR so if the lender increases or decreases its SVR, your mortgage payment will go up or down accordingly. However, unlike a base-rate tracker which follows the base rate, the SVR is set at the lender’s discretion.
So even if interest rates are reduced, the lender may not pass on the full discount to the borrower on its discounted-variable rate.
Remortgaging if you are self-employed or a contract worker
Those who are self-employed, or contract workers may find it harder to remortgage as their income streams tend to be more complex than a standard PAYE employee and can be harder to prove. This doesn’t mean you can’t remortgage, but some lenders are more flexible in this area than others, and the correct broker will know the best lenders to approach to get you the best deal.
We have years of experience helping contractors, business owners and SMEs with their finances, including mortgages. We work alongside expert mortgage advisors to ensure you are making the right decisions with your properties, and Sapphire clients and employees are entitled to free specialist mortgage advice.
Contact us today to see how we can help.
