Five good reasons to remortgage right now

There are around 800,000 homeowners who have been on their lender’s standard variable rate (SVR) for six months or more and could be better off if they remortgage, according to the city regulator the Financial Conduct Authority (FCA). The SVR is the rate that you typically roll onto automatically once your mortgage deal finishes and tends to be much more expensive than other mortgage rates.

Homeowners on a lender’s SVR often pay thousands of pounds a year more than those on low cost fixed or variable deals. For example, someone with a £150,000 repayment mortgage with 15 years left to run who is borrowing 60% of their property value would be paying £1,169 a month if they were paying the average SVR of 4.78%. Their monthly payments would fall to £989 a month if they remortgaged to a best buy two-year mortgage rate of 2.34% a saving of £180 a month or £2,160 over a year.

The table belows the monthly and annual savings homeowners currently paying the average SVR of 4.78% could achieve if they were to remortgage to a best buy two-year fixed rate of 2.34%, based on a range of different mortgage sizes and terms. If you are able to save by remortgaging, you may want to consider using this cash to overpay your mortgage so you can clear it sooner. Most lenders allow you to pay off 10% of your mortgage each year without penalty, but check the small print of your particular deal first. You can find out more about the benefits and drawbacks of making overpayments in our article Should I overpay my mortgage?

Mortgage amountTerm remainingMonthly savingAnnual Saving£50,0005 years£55£660£100,00010 years£115£1,380£150,00015 years£180£2,160£200,00020 years£252£3,024

Mark Gordon, director of money at Comparethemarket.com, said: “Languishing on a lender’s standard variable rate mortgage is likely to cost you thousands of pounds more than you need to pay. By remortgaging, the money could instead be put into savings or could be put away in preparation for any emergencies or to build up rainy day funds.”

Bear in mind that most mortgages have arrangement fees, and some may also have legal fees, although many remortgage deals come with free legal work included. To maximise any potential savings, make sure you always look at the overall cost of any deal you’re considering moving to.

Many people in their 50s and 60s stay on their lender’s SVR because they think remortgaging isn’t an option that’ll be available to them because of their age. However, age shouldn’t be a barrier and several banks and building societies will lend up to the age of 80 and beyond – subject of course to passing their affordability checks. Find out more in our article Mortgages if you’re over 50: what you need to know.

If you are struggling to get a standard mortgage because of your age, you may want to consider other options such as a retirement interest-only mortgage, or a lifetime mortgage.

With a retirement interest-only mortgage, rather than your mortgage finishing on a specific date you carry on making interest payments indefinitely so that you’re able to stay in your home without having to pay back the capital owed.

The capital only has to be repaid when you die or move into long-term care and the property is sold. You can find out more in our article How retirement interest-only mortgages work.

Another option is a lifetime mortgage, which is a type of equity release plan, so there are no monthly interest payments to make. 

Instead, the interest you owe builds up over time and only has to be paid back, together with the amount borrowed, when you either die or move into long-term care. Learn more about lifetime mortgages in our guide Lifetime mortgages explained and about the differences between lifetime mortgages and retirement interest-only mortgages in our article What’s the difference between a lifetime mortgage and a retirement interest-only mortgage?

If you want to see how much a lifetime mortgage is likely to cost you based on your individual circumstances, our lifetime mortgage calculator can crunch the numbers on your behalf.

You must seek professional advice before you can apply for a lifetime mortgage. You can find an equity release adviser via the Equity Release Council’s (the trade body for the equity release sector) website here. Find out more about equity release in our guide Equity release: What is it and how does it work?

Author: wpadmin

Leave a Reply

Your email address will not be published.