This content originally appeared in the MSE weekly email on 22 July 2015.
Bank of England governor Mark Carney made headlines last week saying the 0.5% base rate – static for 6+ years – could rise in winter. It won't definitely happen but means mortgage rates, some of which are currently at all-time lows, could jump (they often do earlier than the base rate).
You can fix for two years at 1.05% (£1,995 fee) if you've a 40% deposit and a good credit history – a huge saving against standard variable rates. So urgently check if you can save – some inspiration:
Christopher: "I remortgaged in Jan – monthly repayments fell from £785 to £533."
Sarah: "Got a new rate with the same bank, saved £289 a month."
1. Check your current deal.
A mortgage is the biggest expenditure most people have, so I'm always slightly surprised that when asked, not everyone knows their rate and details. So check now that you know...
- a. The current rate: And monthly repayment and amount outstanding.
- b. Type: Is it a fix, tracker, discount or SVR?
- c. Deal deadline: If it's a short-term deal (eg, two year fix), when does it end?
- d. Term: How long it is, eg, 25 years, and when it must be fully repaid by.
- e. Penalties: Are there any early repayment or exit penalties?
- f. Your loan-to-value (LTV): The proportion of your home's current value you are borrowing. Eg, £80,000 on a £100,000 property is an 80% LTV. The lower the LTV, the better deal you can get. So if your home has increased in value you may gain. See LTV help for full info.
Everyone should check, but not everyone can save by remortgaging (shifting to a better deal). To see how to use this information get my FREE 60-page MSE Remortgage Booklet 2015 (either instant PDF or order a printed copy).
2. Benchmark your cheapest deal at speed.
OK, so mortgage rates are low, yet many factors affect your cheapest deal. To help we've our...
The table shows the type of rates available. I've added in the average standard variable rate (SVR), the go-to rate lenders put you on after a deal finishes, so you can see the savings possible.
|Deal||Rate||Fee||Annual cost during deal term (incl fee) on £150k (i)|
|Typical SVR rate (for comparison)||4.75%||N/A||£10,260|
|FIX 2yr at 60% LTV||1.05%||£1,995||£7,826|
|FIX 2yr at 85% LTV||1.99%||£975||£8,108|
|FIX 5yr at 65% LTV||2.14%||£1,675||£8,087|
|FIX 5yr at 85% LTV||3.09%||£999||£8,816|
|TRACKER 2yr at 65% LTV||0.98%||£1,675||£7,606|
|TRACKER 2yr at 85% LTV||1.75%||£995||£7,902|
|(i) Fee spread across the deal period plus the repayments, assuming 25 year term|
3. Fees can be £1,000s – our special tool factors them in.
The smaller your mortgage, the bigger the impact fees have, especially for mortgages under £100,000. This can skew which is cheapest for you.
To assess, spread the cost of fees over the fixed or tracker period (as after you may shift again to another deal). To help, use the MSE Mortgage Total Cost Comparison within our best buys comparison, which factors in both fee and rate to find your true cheapest.
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4. How much can you save?
Now you know your rate and what's out there. Our mortgage calculators allow you to work out the potential savings...
Ultimate Mortgage Calculator
Eight tools to home in on the right answer for you, including...Basic Mortgage Calc | Compare Two Mortgages | Mortgage Overpay Calc |Compare Fixed Mortgages | Ditch Your Current Fix?
5. Can you actually get a cheaper mortgage?
I support the now 15-month-old 'affordability checks' those getting new borrowing or extending debt must have. Yet perversely, most lenders need to apply these rules to those trying to switch deal. It ludicrously results in many being told "you can't afford to get a cheaper rate", and it could get worse. See EU remortgage rules could create mortgage prisoners – an MSE campaign priority.
Lenders check you can afford your mortgage if rates hit 6-7%. They also want evidence of income, big bills and expenses, even eating out. Be careful before applying – see affordability help. If you're stuck, there are options. Your current lender and a few small building societies can waive some of the really heavy checks for switchers (you still need to prove income).
6. Should I get a fix or tracker/discount?
With a fixed mortgage, the amount you repay is, er, fixed so it's like buying an insurance policy against possible rate rises. Variable deals move with UK interest rates (sometimes just at the provider's whim). Currently you only pay a touch more to fix.
It's difficult to predict future interest rate moves, so focus on your finances – the more crucial the security of knowing exactly what you'll pay, the more you should edge towards fixing (and fixing longer). If cracking the rock-bottom deal's your driver, edge to short-term trackers. Fix vs Variable help.
7. Is your credit score good enough?
Getting accepted is now the challenge, and when possible you should start preparing months ahead. So... a) Never withdraw cash on credit cards; b) Avoid payday loans; c) Avoid other applications, eg, credit card and contract mobile just before applying; and d) Check your credit file for errors. See 36 Credit Boosting Tips.
8. Mortgage brokers can help boost acceptance.
You can, and often should, use a broker to help you find the right deal. They've information unavailable to consumers, eg, lenders' credit and affordability criteria. So a good broker can ease acceptance by matching you to the right deal – and the mortgage interview's quicker too. See Top Mortgage Brokers for full information.
9. Yet brokers miss some mortgages...
Some lenders, incl Yorkshire BS, Tesco and HSBC, largely sell only direct to the public, cutting brokers out. So brokers are allowed to exclude them, and some (not all) do – hence why using a broker in conjunction with our mortgage comparison, which includes all these deals, is the right route.
10. Got savings? They could get you a better mortgage.
At every 5% LTV threshold from 95% down to 60%, deals tend to get better, so a little extra can have a big impact on your mortgage rate. For example...
Imagine you've a £150,000 home, and want a £122,000 remortgage. That's an 81% LTV, and the top 5yr fix is 3.09%. If you use £2,000 of savings to reduce the amount needed, you'd cross a threshold and be at 80%, where the top 5yr fix is 2.6%. This would save almost £500/year in mortgage payments alone.
11. FREE remortgage, first-timers' and buy-to-let 2015 booklets.
Mortgages are a big transaction, and the best thing to do is to make sure you really know what you're doing. To help we've three free 40+ page printed guides.
- Remortgage booklet 2015: Download instant PDF | Order printed
- First-timers' booklet 2015: Download instant PDF | Order printed
- Buy-to-Let mortgage booklet 2015: Download instant PDF | Order printed
12. Don't fall for the hard sell on mortgage extras.
Lenders and brokers may try to flog their Mortgage Life Insurance, Home Insurance or Mortgage PPI. These can be expensive so use the links above to check what you need and how to get them cheapest. Also check if you're in the right Council Tax band.