Did you know you could remortgage right now and save thousands on your home loan?
Read our guide to remortgaging to make sure you get yourself the best deal you can, particularly now that the cheapest cheapest mortgage EVER is now on the market.
- The incredibly cheap mortgages on the market right now
- Should I move to a fixed-rate mortgage?
- Why should I remortgage?
- How to remortgage: three steps to finding the best mortgage deal
The base rate is the lowest it has ever been in history.
Not only that, as the housing market cools off and fewer people take out mortgages, there’s a lot of competition between mortgage lenders right now and they’re fighting each other to come up with the cheapest loans for home-owners and home-buyers.
In fact, Yorkshire Building Society has just brought out the cheapest ever mortgage. Its rate is 0.89% and it’s fixed for a couple of years. However, you can only borrow up to 65% of the value of the property and there’s a steep arrangement fee of £1,495. So it’s not right for everyone by any means. However, it’s shaking up the mortgage providers and they will have to come back with their own cheap rates too.
This is really good news if you’re looking to save money on your mortgage, it’s highly likely that you can do so right now, just by moving your loan to another company or simply moving it to another product with the same company (that’s often the cheapest option).
In fact if you would like to see just how much you could save by moving your mortgage, get in touch with our award-winning mortgage brokers London and Country now.
As rates are really low, it’s probably a good idea to remortgage to a fixed rate – even one that is fixed for five years if you can find something that’s really, really low.
Here’s what you need to consider:
- If your current mortgage deal is coming to an end and you have moved onto your lender’s standard variable rate (SVR) then fixing it at a really low rate – either with your current provider or with another company – could be a good option for you now. The question is, do you go for a one or two-year fixed rate or a longer five-year or even ten-year fix?
- While shorter-term (two year) fixes often have better rates, they usually incur larger remortgage fees and will leave you searching for a new deal at a time when the rates are likely to be higher.
- A five-year fix might seem expensive now, but it gives you more security against rising interest rates and could well save you money in the longer term. However, this assumes that rates will go up in the next few years. With Brexit there’s a lot of uncertainty about the economy. If that struggles in the next couple of years then rates might go down even further.
- If you are one of those lucky people already on a tracker mortgage taken out a while back which pays base rate plus about 1%, then fixing might not be worthwhile for you. The base rate would need to rise by at least another 1% or so for you too be worse off than on a longer term fixed rate deal at the moment. Stay with what you’ve got – don’t remortgage if you don’t have to!
- If you are remortgaging because you are moving home, remember that the very best deals are still available only to those with larger deposits – 25% or more – so make every effort to save as much as you possibly can – that will save you money in the long term.
There are three different reasons for remortgaging:
1. When you want to switch to a better deal.
This is when you transfer your mortgage from one company to another, or change it to a different type of mortgage with your current lender. It is what you should do when you come to the end of a fixed deal.
When you remortgage at the end of a fixed deal, the balance of your mortgage remains the same as you are just transferring to a deal with a different rate of interest.
This is something that anyone with a mortgage should be thinking about right now. In fact, even if you’re not out of your fixed term, it might be worth paying the ‘early redemption penalty’ and remortgaging just because there are such good deals around right now.
2. When you are moving house.
Often you will have to remortgage in this instance because the value of your new property is more than that of your existing property. It will involve switching deals in the same way as we’ve explained above, but the balance of your mortgage will change.
Even if your lender will allow you transfer your existing mortgage in theory, they will require a valuation of the new property to ensure all their needs are met.
3. When you want to release equity from your home.
This is when you take out a larger mortgage in order to borrow extra money with which to pay off other debts. We advise against this wherever possible – see our article on remortgaging to pay off your debts to find out why.
This article deals with the first type of remortgaging: those who are coming to the end of their fixed term period (where interest rates remain the same rate for a fixed amount of time) and are facing higher interest rates unless they change mortgage. Bear in mind that many of the same rules do apply for those remortgaging to move house too.
1. Start looking before the end of your fixed-term.
If you’re coming towards the end of your fixed-term period, start looking straight away. You can arrange a remortgage up to six months before the end of your fix – and because the good deals are snapped up so quickly at the moment, arranging it early is the best thing to do.
Waiting until the end of your deal will mean you’re put on your lender’s standard variable rate (SVR) which will undoubtedly be more expensive.
2. Get a broker
A good mortgage broker will search across the market for you (not just a few companies that they are tied to) and be able to find you the best deals on offer. MoneyMagpie recommends L&C because:
- They search across the market to find you the best deal for your circumstances.
- They have access to over 90 lenders and even offer exclusive deals you can’t get anywhere else.
- They have won more awards than any other broker.
- Their expert mortgage advice service is fee free.
So have a chat to a L&C advisor to see what deals they can find you.
3. speak to your current lender
If your broker does find you a great offer, you should also consider having a chat with your current provider to see if they can match the offer. They won’t always be able to – but if they do, you can avoid the (sometimes excessive) exit fees that are involved with changing your mortgage provider.
4. consider over-paying
If you find a cheaper deal than the one you have currently, you could consider continuing to pay the same amount as you were paying before (in other words – over-paying) so that you can pay off your mortgage quicker and save yourself even more money in the long-run!
How much will it cost?
The costs that you will have to fork out for straight away are
- The arrangement fees for the new mortgage (although some companies might waive these just to get you on board)
- The exit penalties on your current mortgage. It’s likely that you won’t be charged anything if you are out of your ‘fixed rate’ period, but some lenders will charge you a £750-300 ‘administration fee’
- Early repayment charge. If you are still in the fixed-rate period you will typically be charged 1-5% of the value of the early repayment.
More recently, arrangement fees have become a tool to manipulate comparison tables. By offering a lower rate of interest but high arrangement fees a mortgage provider can get up high on comparison tables. They then make the money back by hiking up arrangement fees.
This can work to your advantage: if your mortgage is over £200,000 you’ll probably save money by paying a higher arrangement fee and then lower interest. However under £200,000 it’s probably better to go for a slightly higher interest rate to save on arrangement fees. For more information on cost see our article on mortgage set up costs.
What if you can’t get something you can afford?
If you find that either no one will offer you a new mortgage or the ones you are being offered are simply too expensive, then you have two choices.
Firstly you will have to be resourceful and try to make more money out of your house in order to be able to afford it, or, if this is not possible, you should seek help and advice from debt and housing charities.
Make money from your home
There are two big ways to earn from your home. You can rent out your driveway, garage or parking space, and if you live in the right area it can make you as much as £17,000 a year. Alternatively, try renting out your spare room which can make you a tax-free income up to £4,250 a year.
For more money-making ideas check out our most popular article – 10 easy ways to make quick cash.
Seek help quickly
Don’t bury your head in the sand if you really are facing a problem. There are plenty of free services out there to help you, so make the most of them as soon as you think you might be struggling.
- Citizens Advice Bureaux (CAB) which provide free, confidential and independent advice from thousands of locations in the UK
- StepChange is a debt charity offering an online debt remedy service and free debt advice in person or on the phone.
- Christians Against Poverty is a national, free debt advice service that runs through local churches.
- Nationaldebtline is a website offering a guide to dealing with debt – and has some useful sample letters for writing to creditors.
- Payplan is a free debt management company funded by the credit industry, which makes repayment arrangements
- Shelter is a great resource if you are having problems with your rent or mortgage. They can stop you being turfed out of your home, even if you’re about to go to court.
Try any of these organisations for free help with budgeting, dealing with your creditors, keeping the roof over your head and getting out of debt and into wealth again!