How Swapping Mortgage Rates Isn’t Always The Best Way To Reducing Outgoings
Many homeowners are seeing their current mortgage products coming to an end and are thinking about moving to a new mortgage to save expenditure. But is it always the case that a lower rate mortgage is cheaper in the long run?
On the face of it, if you can reduce your monthly mortgage costs by half a percent then you could be saving yourself a lot of monthly expense. This could be a saving that you can spend elsewhere or if you are unlucky and expecting a huge rise in mortgage outgoings, just a reduction in the increase of the monthly cost.
Using mortgage comparison charts tell you what remortgage is the cheapest on the market today, but is it right for you? More importantly, will it actually save you money in the long term?
Although interest rates have tumbled at the moment and are expected to continue this way for some months, some experts believe a reduction is on the cards in the near future. So if you lock into a 2-year, 3-year or longer fixed term mortgage, by the end of the term you might be paying more than a variable remortgage if you had continued as you are.
On the other hand, we could be surprised by a recovery and interest rate rises and then you would be winning. That’s the nature of this game. But this isn’t the only area in which you could be spending a lot more than you need to.
Look closely at those best remortgage offers that you see in mortgage charts and read the small print. Look for the upfront fees – arrangement fees, legal fees etc. Take a look at your existing mortgage, how much is involved in exiting that? There may be exit and deed release fees. These fees may also exist in the new mortgage – are they significantly higher than the current mortgage – that’s as good as a cost in the future?
When you look at these costs, how much will you be paying to change your mortgage? Many lenders allow you to add this to the borrowing, but then you are paying extra interest on them for the duration of the mortgage. Even more outgoings each month!
If you are able to pay these fees at the time of the move then in the long term that way is going to be cheaper. But then look at your existing mortgage. If you are having to pay £2,000, maybe even more to swap mortgages, could you instead pay off a small chunk of the mortgage, or at least put that cash away in a high interest account instead? Then take a look at how that would offset your payments – or work out what your net payments are after the money put aside earns some interest.
Changing to a new building society may not always be the right thing to do. First, speak to your building society and see what monthly charges they can get you down to with your existing mortgage. Then, instead of relying on tables to find how to compare mortgage rates, speak to a few mortgage brokers and get them to do all of the leg work for you and write down exactly what you will be left paying each month.
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