2nd July 2019
Has your monthly mortgage repayment increased? This may be an indication that your fixed rate or tracker rate mortgage has come to an end and you’ve been placed on the standard variable rate.
The standard variable rate (or SVR) is what you’re automatically placed on when your current mortgage product comes to an end, unless you remortgage. The SVR is set by your lender and can increase or decrease at any time, though it tends to be influenced by the Bank of England base rate. You can find out more about SVR here.
The risk of being placed on the SVR is that you could be paying more in the long run. The current average SVR (as of January 2019) is around 4.9%, which is over 2% higher than the average fixed rate. Also as the SVR is a variable rate, your monthly repayments may differ each month which, if it’s important for you to have a fixed budget, makes being on the SVR a higher risk product. You can mitigate this risk and stay on top of your finances by remortgaging.
Remortgaging is the process of changing your current mortgage deal, whether you’re on a fixed rate, tracker rate or SVR, to a new mortgage deal either with your existing lender or a new lender. By doing so you will be placed on a new, and hopefully lower, interest rate. Note that if you’re in a fixed rate or tracker rate mortgage and are trying to switch, you may have to pay an early repayment charge.
So how much could you save by remortgaging?
The average SVR is 4.9%. If you have a £150,000 mortgage, with 25 years on the term, the total cost of your mortgage would be around £260,450 so the monthly repayments would be £868.
The average 2 year fixed term is 2.52%. For the same scenario, the total cost of the mortgage would be £202,331 with the monthly repayments at £674.
This means a saving of £58,119 across the 25 year term if you were to continue remortgaging when the 2 year fixed term comes to an end at this interest rate. This is not the only scenario where you can save money by remortgaging however. You can also save if your loan-to-value has increased.
If the value of your property has increased since you first took out your mortgage, you may find yourself in a lower loan-to-value band. For example, if you purchase a property to the value of £300,000 with a 10% deposit, you have £30,000 in equity. Over the years, while you’ve been paying your mortgage off, the value of your home has increased. If your mortgage is reduced to £245,000 and the value of your home is now at £350,000 for example, your equity will increase to £105,000 or the equivalent to 30% of the property. This allows you to qualify for a 70% loan to value mortgage and lower rates of interest.
How will you know the value of your home?
This can be done simply by doing some desk research. By asking a few estate agents, or looking up similar properties in your area using property sites such as Zoopla and Rightmove, you may be able to get a good understanding of how much your property is worth and roughly what type of remortgage deal you could apply for. You lender is also likely to do a valuation of the property to work out what kind of mortgage deal you qualify for.
To find out how much you could save by remortgaging, get in touch with one of our expert Contractor Mortgage advisers who will be happy to help.
All content is accurate at the time of publication
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