Is now the best time to remortgage? Should I switch my mortgage rate now?
We’re understandably being asked these kinds of questions more and more at the moment. With the Bank of England’s base rate rising steadily in an effort to fight inflation, combined with the market’s sharp reaction to the government’s mini-budget both driving up the cost of borrowing for homeowners, we’ve put together some answers to the most common questions, to guide you through your options.
My mortgage rate is ending in the next six months – what should I do?
Typically, the earliest that your existing lender will allow you to switch to a new rate is 3-6 months before your existing rate is due to end.
This means that you can choose a new mortgage deal from your existing lender and then move straight onto it when your current one ends. This is called a product switch and usually won’t involve any new fees or questions about your income or property.
However, because of the sharp rise in the cost of mortgages, most borrowers are being offered much higher rates than they’ve been used to over recent years. On top of this, as many lenders won’t publish your new rate until 3 months before your current one ends, borrowers are faced with a worrying wait to find out if they can still afford their loan.
This is exactly why we’re recommending that all of our clients speak to us as early as possible. If you wait for your current lender to offer you a new deal, it may already be too late to switch to a new lender if the offer isn’t competitive. We can research the market for you and potentially secure an alternative mortgage with a new lender. And because the new lender’s offer will generally be valid for up to 6 months, this gives a chance to secure a rate now which we can review against your current lender’s deal when the time comes.
If your current lender’s deal is better, we can cancel the new application without any cost to you. However if rates continue to rise, you’ve banked a new deal at a more competitive price – so it’s a win-win!
It’s worth knowing that the application to the new lender will incur a full search of your credit history, whether or not you actually take up the deal. One full search of your credit file won’t do any harm on its own but will show up to other credit agencies or banks, so this is something to bear in mind.
What if my current rate has more than 6 months to go?
You can still speak to us!
In most cases, you will be on a rate that’s lower than we can secure for you today because interest rates have risen over the last 12-18 months, and are currently the highest they’ve been since 2008. Additionally, there are likely to be exit penalties for leaving your current deal early, known as Early Repayment Charges (ERC). But we would still advise calling and speaking with a member of our team, as we can calculate the cost of switching and work out if you’re better off jumping ship or staying put!
This may just come down to how you feel about the economy and where you think interest rates are headed next. Whilst nobody knows for certain, if you feel that rates will continue to rise and you’re not comfortable waiting for your current deal to end with your fingers crossed, you can leave early and secure a new rate with us today.
How else can I reduce my mortgage payments?
There are other options open to you if you’re worried about rising mortgage costs. They aren’t suitable for everyone and some are not necessarily long-term options, but if the alternative is financial difficulties or losing your home, they should definitely be explored:
Switch to interest only
Switching to interest only will save you money because you are only paying the interest on the mortgage each month. This does mean, however, that the capital is not being reduced and therefore you will need a viable way of paying off the capital at the end of the term.
Whilst this might be a short term solution for you, lenders will need to be convinced that this strategy would work all the way to the end of the mortgage term, so they may ask for proof of how you will repay the capital at the end of the loan. Lenders have strict requirements for this type of mortgage repayment, so don’t hesitate to reach out for help navigating these.
Extend your mortgage term
If you have the ability to do so, you could look at extending your mortgage term. This will make your mortgage payments cheaper, however you will be paying interest for longer than you would have been and the capital left on the mortgage will reduce more slowly. You will also need to ensure the extended mortgage term fits within your expected retirement plans. You can review your mortgage term again in the future, so if we see a reduction in rates in the years that follow you could reduce the term to fit your affordability then.
Select a tracker (variable) rate rather than a fixed rate
Tracker rates, also known as variable rates, are currently lower than fixed rates, but these types of rates are linked to the Bank of England Base rate; so although they start off lower, if the Bank base rate continues to increase you could be paying the same as you would have been on a fixed rate, or even more.
With everything changing so frequently, it’s so important to fully understand the type of mortgage you have, and contact us if you have any specific questions or queries you’d like to discuss. Our phone lines and emails are always available for any questions or concerns you may have, and our team is always on hand to offer to-the-point answers and support.
