Because Changing Mortgage Rates Isn’t Always The Best Way To Reducing Expenditure
Many borrowers are seeing their current mortgage deals coming to an end and are thinking about moving to a new mortgage to save expense. But is it always the case that a lower rate mortgage costs less in the long run?
On the face of it, if you can reduce your monthly mortgage repayments by half a percent then you could be saving yourself a lot of monthly expense. This could be a reduction 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 reduce your outgoings in the long term?
Although interest rates have tumbled at the moment and are expected to fall further for some months, some experts think a drop is on the cards in the short term. So if you lock into a 2-year, 3-year or longer mortgage with a fixed rate, by the end of the term you might be paying more than a variable mortgage if you had stuck it out.
On the other hand, we could be surprised by a recovery and interest rate increases and then you would be in pocket. 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 study 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 closing that? There may be exit and deed release fees. These fees may also exist in the new mortgage – are they a lot higher than now – that’s the same as a cost for the future?
When you look at these charges, 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 more interest on them for the duration of the mortgage. Even more outgoings each month!
If you can afford to pay these fees at the time of the move then in the long term that way is going to cost less. 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 lender may not always be the right thing to do. First, speak to your bank and see what monthly charges they can get you down to with your existing mortgage. Then, instead of relying on tables to try to compare mortgage rates, speak to a few mortgage brokers and get them to do all of the hard work for you and write down exactly what you will be left paying each month.
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