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How Do You Know if You are Paying Too Much for Your Mortgage?


How Do You Know if You are Paying Too Much for Your Mortgage?
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Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

Almas Uddin26 Jan 2021
    

Our homes are nearly always one of the most significant investments we ever make. Much of our careers and income are decided around our lifestyle aspirations, where we want to live, and when we need to downsize or move into a larger property.

Monthly mortgage payments are also one of the highest costs we pay, and the standard 25-year term makes a home loan a debt that stays with you for a significant chunk of your life.

Therefore, finding competitive mortgages, knowing when interest rates have dropped in your favour, and taking the time to consider switching can save you, quite literally, thousands of pounds.

Lower cost mortgages also mean you can pay back more, and therefore own your property outright sooner.

It's easy to say, but for many homeowners, remortgaging sounds like a time-consuming, stressful business, and you might not know that there are some simple steps you can take to find out if you are paying too much; and if so, what you can do about it.

Is It Likely That I'd Save Money By Remortgaging?

In a nutshell - yes, it's very likely!

Money Supermarket reports that around 12% of UK mortgages are now being paid with interest calculated on a Standard Variable Rate (SVR). Of 11 million properties with a mortgage, that equates to 1.3 million homeowners who pay steep interest rates - which they probably don't need to.

The majority of mortgage providers in the UK offer a fixed-term period, usually between two and five years. During those initial years, you pay a fixed rate of interest that doesn't change regardless of the Bank of England rates.

However, after your fixed term ends, you automatically switch over to the lender's SVR. This interest rate is calculated as a certain number of percentage points about the base rate. By and large, it is substantially higher than an attractive fixed-rate deal designed to entice new customers.

How much more are you paying?

  • The average homeowner with an SVR mortgage pays £133.46 extra every month.
  • Per year, you could be spending £1,600 in unnecessary interest charges.
  • Over the next 20 years, that is a tremendous £32,000!

These sums are not small amounts, and saving up to £32,000 on your mortgage costs could shave years off of the time it takes to repay the loan - or take away a considerable amount of pressure on your finances.

Unfortunately, around 15% of borrowers paying an SVR have no idea that they are, or haven't been aware that they have the option to switch.

In many cases, this is because of a worry about exit penalties, or believing that remortgage costs would be so high as to cancel any savings.

The good news is that this is not true!

How Can I Find a Good Remortgaging Deal?

Mortgage lenders rely on the fact that:

  • Homeowners might not know they have the right to remortgage.
  • Deals can be changed at pretty much any time, although if it is within the fixed-term period, high exit penalties would likely make this unviable.
  • There is a misperception that remortgaging is expensive.
  • Many mortgage holders don't feel they have sufficient knowledge to decide on the best remortgage option.
  • A lot of people feel comfortable sticking with the bank they know, and therefore end up accepting extremely high-interest rates rather than looking elsewhere.

Revolution Brokers works with residential, private and commercial clients across the UK, negotiating mortgage lending on any size of property, investment or remortgage.

Our teams frequently come across remortgage applications where the fixed term ended several years ago, and our clients are always shocked at the thousands of pounds they have paid in the interim that they could have saved with a simple switch.

As you pay off your mortgage, the split between interest and capital payment included in your monthly direct debit widens. Over time, you pay off more of the capital, and usually, your property will increase in value through the years.

What that means is that, after, say a five-year fixed term:

  • Your property might be worth slightly more.
  • The value of the mortgage against it is slightly less.

These factors combined result in a lower Loan to Value ratio required on a commercial remortgage. In essence, you need to borrow a smaller proportion of the overall value of your home.

LTV ratios are a key risk factor for mortgage lenders. The lower the ratio, the less risky you are as an applicant, the easier it will be to find competing mortgage providers, and the lower the interest rates you will be eligible for.

You won't just save interest by finding a new fixed-rate deal, but could also find desirable fixed rates as a low-risk customer that a lender will be keen to secure as a customer!

Can I Remortgage My Property at Any Time?

As we've mentioned, remortgaging during a fixed-term period isn't usually worthwhile. You are tied into that mortgage for the number of years agreed. If you decided to sell the property, for example, you'd likely face expensive exit charges for leaving the contract before the end of the initial term.

However, once your fixed term has ended, you are free to find other lenders, compare different mortgage products, and remortgage as soon as you wish!

Another great option is to start looking at the current fixed-rate mortgage offers a few months before your term ends.

You can usually agree to a remortgage rate up to three months before the contract ends, giving you plenty of time to work through the paperwork with your broker and get everything in place.

If you need help in any of these scenarios, do get in touch with the Revolution team for guidance throughout the remortgaging process:

  • Not knowing whether you are in a fixed-rate deal or paying SVR on your mortgage.
  • Being unsure when your fixed-rate term comes to an end.
  • Needing help to identify if any exit penalties will apply.
  • Finding the most competitive remortgage rates to switch your home loan.
  • Seeking a respected lender who can offer secure products at compelling rates.

Remortgaging is simple, straightforward, and can all be managed by your broker, with clear advice at every step.

Give us a ring on 0330 304 3040 or get in touch for more help with your remortgage.

Contact us now to discuss your personal options, Revolution Finance Brokers specialise in commercial and residential mortgage in Essex, Kent, London and Hertfordshire.

 

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.

We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.