Andy Webb discusses risks and tips for remortgaging
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Households need to cut every possible penny off their bills as the Bank of England predicts inflation will top six percent by the Spring. Yet too many overlook one of the biggest expenses of all.
If you have a mortgage, the repayments can cost you hundreds of pounds every month. Some pay thousands.
Many have overstretched themselves to get on the property ladder amid spiralling prices, and are really under the cosh.
Their plight will get worse after the Bank of England raised base rates to 0.25 percent on December 14.
Banks and building societies responded by immediately hiking their standard variable rates (SVRs), including Santander, Nationwide, NatWest, Barclays, Lloyds, Halifax, Virgin Money and TSB.
Around one million borrowers on SVRs will pay more interest as a result, but now they can fight back.
The SVR is your go-to rate at the end of your original mortgage deal, say, a two or five-year fix.
They can be incredibly expensive, with many lenders charging four or five percent, even though best buy mortgage deals start at just over one percent.
For example Santander’s SVR will increase to 4.49 percent from February. Yet Barclays offers new customers a two-year fixed rate up to 60 percent loan-to-value (LTV) at just 1.1 percent.
That’s a massive difference and it adds up over time.
On average, mortgage customers save £290 a month by remortgaging, according to new figures from online broker Trussle.
That adds up to a saving of an incredible £3,480 a year. Over the course of a two-year fixed rate mortgage, the total saving is £6,970.
Miles Robinson, head of mortgages at Trussle, said remortgaging is a quick and simple process that can be done online at any time.
“Not only can it mean paying less interest each month, but it will also fix your payments to give you greater certainty on their household spending.”
He said too many people do not bother as they think it is a “hassle”, but the savings make it worth it.
It makes sense to remortgage before the Bank of England increases rates again. Markets expect up to three more base rate hikes in 2022.
Here’s a word of warning, though.
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If you are still locked into a fixed-rate mortgage, you will probably have to pay early redemption penalties (ERCs) for switching to another deal.
The cost will all but wipe out the benefits of remortgaging, so consider waiting until the mortgage has ended.
The same applies for tracker mortgage with ERCs.
However, once you have reverted to your lender’s SVR there should be no penalties, and it’s time to get cracking.
You could also take the opportunity to borrow a bit more money as a rock bottom rate, and use it to clear expensive debts such as credit cards and overdrafts.
Paul Stringer at broker Norton Finance said: “When property prices are high, as they are at the moment, it’s often possible to borrow more than your original mortgage.”
He added: “Remortgaging can make a substantial difference to your monthly outgoings, especially if you have loans, credit cards or other more expensive unsecured debt.
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