Could moving your mortgagage ultimately help you to make big savings on the cost of your home - we look at your options.
Invariably the most expensive thing you'll ever buy is your house so if you've already made the leap onto the property ladder it follows that this is the first place you should look to make savings. Anything you can do to cut the length of this loan and the amount of interest you pay will help to reduce the cost of your home significantly.
Could remortgaging save you money?
It used to be that a mortgage was for life, or at least for as long as it took to pay for your house outright. However this is no longer the case. If you’re currently paying your lenders standard variable rate (SVR) or are nearing the end of a fixed mortgage deal, remortgaging is definitely something worth looking into.
The idea of remortaging is to guarantee yourself a better rate than you are currently paying. This can potentially help to reduce your monthly repayments, the term of your mortgage and the total amount you'll pay back in the long run.
For example, if you’re currently paying a lender’s SVR of 7.79% on a £160,000 repayment mortgage with a 20 year term remaining, you could save up to £216 a month simply by remortgaging to a 4.98% deal. This works out as over £3150 saved in interest repayments a year! Obviously the exact amount will depend on your circumstances however it just goes to show that for a little effort the rewards could be huge.
For the biggest savings you should remortgage to a cheaper deal but arrange to keep your monthly repayments the same. This will mean that although you’re not paying a penny extra, more of your money is going towards clearing your outstanding balance rather than being wasted as interest, helping you to pay off your mortgage even sooner.
Before you even begin comparing mortgage deals you'll need to know what you are currently paying. Although you're likely to have a good idea of your monthly repayments you will also need to know the current APR, remaining number of years and outstanding amount left on your mortgage. Once you have this information you'll be in a position to begin your enquiries.
Here comes the but….
Unfortunately remortgaging isn't as simple as just switching to the cheapest rate as there are arrangement and valuation fees to consider along with those charged by your solicitor. If you are tied into a deal you will also need to take into account the cost of any early redemption penalties imposed by your current lender. So, when comparing different mortgage deals its important to include all these associated costs in your calculations. This will enable you to make a true comparison which is especially important if you will need to borrow further to cover these costs. Some providers are willing to contribute towards remortgage fees as a means of attracting new customers so if the interest rates are attractive deals of this nature could be worth looking into.
Mortgage best buy tables can be a good place to start as these will give you a general idea of the types of deals available. However it is best to have a chat with an independent, qualified mortgage advisor. Even if you have a good understand of the mortgage options available, mortgage advisors can offer further advice and provide details of the latest offers. This will save you time and effort and give you confidence that you’re getting the best deal possible. What's more, as their fee will be paid by your chosen mortgage lender, using an advisor should not cost you anything extra.
When looking to remortgage it's important to seek advice from an independent mortgage advisor as they will be able to search the whole of the market to find you the best deal. Tied mortgage advisors on the other hand will only be able to offer you mortgage products from the specific companies they represent, narrowing your options and saving potential considerably.
Should you stick or twist?
Having said this, it can be a lot cheaper and simpler to stay with your current provider. Once you're armed with information on competitor deals it's definitely worth approaching your existing lender and asking whether they will match them.
Many providers are flexible on this front as it’s likely to be more profitable for them to reduce your rate rather than to lose you as a customer completely, plus if they say no you already have the information you need to get your cheaper deal elsewhere.
Pay less by overpaying
If you're tied into a deal its unlikely that you'll be able to save money by switching mid term as the early redemption penalties you’ll be charged by your lender are likely to outweigh the benefits of moving your mortgage. So, while in terms of bettering your rate all you can really do is put a reminder note in your diary, or use our free reminder service (click here for more information) there is another money saving option that may be available to you.
If you have a flexible mortgage making overpayments whenever you can afford to could potentially save you thousands of pounds in interest and help to cut years off your mortgage term.
For example, by simply putting an extra £50 a month towards a 25 year, £160,000 mortgage you could save over £16,000 in interest payments and own your home almost 3 years sooner – quite an achievement I’m sure you’ll agree.
A word of warning though, whenever looking to remortgage or overpay it is hugely important that you take the time to familiarise yourself with the terms and conditions of your current mortgage deal as breaking these terms could be a lot more expensive than staying as you are.
Mortgages are a very complex subject and if you're not an expert it can be difficult to know whether you're really getting the best deal. Speaking with an independent mortgage advisor can help to overcome this issue as they will be able to explain your options and help you to find a mortgage to suit your circumstances. For more information on the different types of mortgages available click here.
So, by making sure you’re on the best deal possible and paying a little extra whenever you can afford to your house will ultimately be a much cheaper purchase. After all the potential savings are huge, for a little work you could save over £3,000* a year!
Remortgage figure based on switching from an SVR of 7.79% to a deal of 4.98% for a £175000 mortgage with term of 20 years remaining – gives a saving of £3456 p.a.
Compare mortgages via money.co.uk
