ime was when remortgaging was only done by those who needed to unlock the capital in their homes to pay off other debts. The word came to have negative connotations, but with interest rates at historic lows millions of people could saving tens of thousands by remortgaging. It’s time to change how we think about mortgages – considering them more like insurance policies where switching to better deals is commonplace.
If you’ve been paying into your mortgage for years and now have over 40% equity you’ll be able to borrow at amazingly low rates with a large number banks offer fixed rates below 2% and some as low as 1.5% for several years. These low rates are caused by a combination of super low interest rates and government backing for home lending. Plus those who already own significant equity in their home are effectively taking out of the bank lending them money, so even in the worst UK house price slumps drops of 40% are unheard of.
If you took out your mortgage before the financial crisis you might have opted for a long term fixed interest rate for higher than what is currently available, and switching could save you tens of thousands over the life of your mortgage. Even for the majority of us who are on variable rates, switching is likely to save thousands your increased equity makes you eligible for better deals.
It’s important to consider the overall cost of lending over the lifetime of a mortgage when switching. This shouldn’t be too hard for anyone used to using a calculator to work out, but if in doubt at all it’s worth going to an independent financial advisor. You need to take into account not only the interest rate offered on the initial fixed rate period, but the longer term rate and both the application fee for the new mortgage and the early repayment or redemption fee for your existing loan.
Remortgaging can also be a great opportunity to put your savings to better use. With returns on savings at rates lower than inflation, paying off more of your mortgage can be a great way of saving money over the long term. But many mortgage providers charge hefty fees for making additional payments. Switching mortgages gives you a chance to convert some of your savings into additional equity without paying these fees. Remember that the more equity you have in your home, the lower your mortgage interest rates will be – even relatively small gains of 5% can cut interest rates dramatically and save you thousands over the lifetime of your mortgage.
If your income is high enough that you’re able to add to your savings regularly then you might benefit from switching to an offset or current account mortgage. Here your savings are used to boost your equity and reduce your interest payments. Even with low mortgage borrowing costs, you’re likely to save more by doing this than putting your money into savings products – even ISAs.
Remortgaging is obviously a big decision to take, but you don’t owe any loyalty to your existing provider. They’ll have already made tens of thousands of pounds from you in interest. When comparing home insurance you wouldn’t stay with your provider if they quoted you a thousand pounds more a year than a rival, but by avoiding remortgaging many of us are doing precisely that with our home loans.
While the current financial circumstances might not be great for everyone, for those with existing mortgages these can be great times. Take advantage of high house prices and low interest rates now and you could be enjoying savings equivalent to over a thousand pounds a year – enough for a family holiday.