For homeowners, paying your mortgage is just another bill, alongside your energy, your water and your TV licence.
When you first took the mortgage out, you probably found the payments affordable alongside your other expenses, but what if your payments have now increased?
Perhaps your fixed or discounted interest rate period has expired and your mortgage has now moved onto your lender’s Standard Variable Rate – which could well be quite a bit higher. If you’re looking to reduce your monthly payments so that you can free up some cash, read on to find out how you could do this by moving to a better deal.
Switching the deal
If you’ve had your mortgage for a while, you might have found that it’s been moved onto your lender’s Standard Variable Rate (SVR). This is rarely the cheapest rate and generally follows the Bank of England (BoE) base rate but two or three percentage points higher.
While the BoE base rate has been at a historic low of 0.5% for more than six years now, analysts expect it to rise at some point over the next 12 months. This could mean your lender would also increase the rate of its SVR and your mortgage payments would go up.
That’s not to say this would definitely happen – depending on your lender, its SVR may not be directly linked to the base rate. It could leave the rate the same (or even increase it when the BoE base rate hasn’t changed). However, being on a variable rate means your payments could change whenever the lender decides and if you’re on a tight budget, it could mean you’ll struggle to afford the new payments.
By remortgaging to a new deal, you could reduce how much you’re paying every month, making your mortgage more affordable. You can do this by switching your mortgage to a deal with your existing lender – if they’re currently offering a competitive one – or by moving it to a different lender if this is the best way to save.
How to remortgage
When you’re looking for a new mortgage deal, it makes sense to start with your current lender as they may have offers for existing customers only. But you should also look at the range of deals available from other high-street lenders or you could find a rate through a mortgage broker like Ocean. Brokers can get access to deals that aren’t available on the high street and they will work to find the right deal for you.
You need to decide whether you want a discounted or a fixed-rate mortgage. A discounted mortgage can offer some of the lowest rates but payments are variable – so they will go up as and when interest rates start to rise. If you can accept that risk and you can afford a little leeway with your mortgage payments, you might decide to go for a discounted mortgage deal.
However, if you prefer the security of your payments being the same every month, you might go for a fixed mortgage deal instead. You’ll be able to fix your payments for two, five or even 10 years so you’ll know that for this period, there’ll be no change to what you’re paying.
It’s important to check the details of your current mortgage, as you might have to pay early repayment charges. This isn’t always the case, especially when you’ve been moved to the SVR, but you should look to see that any charges you’ll have to pay won’t outweigh what you’ll be saving on the new deal.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.