If you've a mortgage that's due to renew in 2017, your biggest financial risk may well be that rates will rise rapidly. They've been at historic lows and we've got used to that. Yet some of the cheapest deals, such as HSBC's 0.99% 2yr fix, have been axed this month. And the City's swap rates, one of the factors banks use to decide their fixed rates, have risen - eg, 5yr swaps are up from 0.35% in September to 0.87% now. This has all fuelled fears of further mortgage hikes.
Of course we can't predict the future. But even if rates fell again, savings for mortgage switchers are likely to be limited compared to today's top deals; yet if they rise, the costs could be huge.
So this is our clarion call for ALL mortgage holders: if you've time off this Xmas, try to cut your mortgage costs. JM emailed: "Read your guide, remortgaged, saving £200/mth [£2,400/yr]. Delighted." And Michael wrote: "We moved our mortgage to a five-year fix at a lower rate, lowering our monthly payment and trimming five years off the term. Thanks." Here's what to do...
1. Dig out all you need to know about your current deal. To see if you can remortgage (switch mortgage to save), you need the following...
a) What's the rate? And monthly repayment & debt outstanding.
b) What type is it? Fix, tracker, discount, standard variable rate.
c) When's the intro deal over? Eg, when does the 2yr fix end?
d) How long's the full mortgage term? When must it be fully repaid?
e) Will I be penalised? Are there early-repayment or exit penalties?
Crucially find your CURRENT loan to value (LTV) - the proportion of your property's value you're borrowing: £90k on a £100k property is 90% LTV. For each 5% lower your LTV, usually until 60%, the cheaper the deal. So if your home's increased in value since you got your mortgage, you may gain. See LTV help for full info.
2. Speedily find your top deal with a mortgage comparison. Your best may be different to someone else's.
So bash your info into our comparison tool to get a benchmark for your top deal, then read on.
|Typical current top deals on A £150k mortgage
Links take you to our Mortgage Best-Buy tool
|Deal||Rate + Fee||Cost/yr in deal term (incl application fee) (1)|
|Typical SVR rate||4%||£9,500|
|Fix 2yr at 65% LTV||1.17% + £1,695||£7,770|
|Fix 2yr at 90% LTV||1.94% + £1,499||£8,320|
|Fix 5yr at 65% LTV||1.9% + £999||£7,750|
|Fix 5yr at 90% LTV||2.54% + £999||£8,310|
|Tracker 2yr at 60% LTV||1.19% + £995||£7,430|
|Tracker 2yr at 90% LTV||2.29% + £999||£8,380|
|(1) Assumes fee paid upfront, 25yr term|
3. BIG savings are possible if you're on your lender's standard variable rate (SVR). This is the rate most fixes and trackers revert to when intro deals end. They're often pricey.
To show you the size of possible savings, here are some major lenders' current SVRs (some have cheaper versions for older customers), which now average about 4% - see SVR help for more:
Barclays 3.74% | Coventry BS 4.49% | HSBC 3.69%
Lloyds & Halifax 3.74% | Nationwide 3.74%
RBS & NatWest 3.75% | Santander 4.49% | Virgin Money 4.54%
Yorkshire BS 4.74%
Now compare those with the rates above and apply this logic: Every 1 percentage-point mortgage cut saves c. £80/mth per £100k of mortgage.
So someone moving from a 25yr, £150,000 mortgage at 4% SVR to a 2yr fix at 1.17% will save £3,400 over 2yrs - even after fees.
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4. You can lock in some rates 7mths ahead. With most mortgages, you can apply now & take the money up to 3mths later, which takes you to March. But if you don't need to remortgage till between then & July, there could be an option to still grab today's rates. See it as insurance against potential rate hikes, as there are risks. Here's how it works...
Most major banks go up to six or seven months on some of their deals. So if you find a decent one and lock in, if rates rise before you remortgage, you're quids in.
Yet as you often have to pay fees in advance, if rates fall or there's a better deal when you come to remortgage, it may have been better to wait and you might even decide it pays to dump your reserved rate for the new one, meaning you'll forfeit the fee. That's why we say to see it as insurance - it protects against future rate rises, but at a potential cost. The lower the fees, the less risky it is. For full info on how to find these deals, and the risks, see Long lock-in mortgage help. Plus it's best to check with a broker first - see point 8.
PS: Some lenders are offering existing custs new mortgages many months in advance of their deals ending, and waiving fees to switch. If they're doing this to you, it shows you're their type of customer. But say you'll think about it and do your research or speak to a broker first to check if it really is a good deal.
5. Join our FREE Credit Club to interrogate what lenders really think of you. Your credit history's a huge part of whether you'll be accepted for any type of credit, incl mortgages. Our revolutionary, totally free MSE Credit Club tries to demystify the acceptance process and uncover the true picture of your overall financial appeal, for all manner of products.
It includes a free Experian Credit Score. But lenders don't stop there - and we wanted to mimic what they do more closely, so we don't stop there either. It also includes your unique Affordability Score, a Credit Hit Rate that tells you which cards & loans you've the best chance of getting, and tips on how to boost your score.
6. Should I go for a fix or tracker/discount? With a fix, the amount you repay is, er, fixed - it provides certainty against possible rate rises. Variable deals such as trackers or discounts move with UK interest rates, or sometimes just at a provider's whim.
No one can predict future rates, so focus on your finances - the more crucial the surety of knowing the cost, or the more worried you are by uncertainty, the more you should hedge towards fixing - and fixing longer. Plus generally you'll only pay a touch more to fix. See Fix vs Variable help.
7. Get our FREE 60-page Remortgaging Booklet. Your mortgage is likely your biggest expenditure, and just because you've done it once, doesn't mean it's the same this time around. So be sure you know what you're doing. Our guide takes you through it step by step.
- Remortgage Booklet 2016: Download instant PDF | Order printed
- Remortgage-help 5-min video: Sometimes it's easier to watch than read. See the short remortgage help video.
8. You can go it alone... but it's often better with a broker. Brokers have info that's often difficult to find, eg, lenders' credit and affordability criteria and what properties banks'll lend on.
A good broker can match you to the right deal - see Top mortgage brokers.
However, a few lenders, eg Yorkshire Bank, cut brokers out and sell only direct to the public. So some brokers can and do exclude them - we suggest you use a broker alongside our mortgage comparison, which has all these deals.
9. Remember the fees - our free tool factors 'em in... If you've a small mortgage (eg, sub-£100k), the bigger the impact of valuation, legal and other fees. Factor these in over your deal period to work out the true cost. Our MSE Total Cost Assessment in our best-buys comparison factors in fee and rate for your cheapest deal.
10. Don't think just because you can afford monthly payments, you'll pass affordability tests. For the past three years, lenders have had to stress-test if your mortgage would be affordable if rates hit 6-7%. They want evidence of income, bills, expenses, even eating out. So being frugal in the months before applying helps.
We're fans of 'affordability checks' as they ensure you don't push your finances too far - yet they're not logical for many remortgages, and ridiculously, people are being told they can't afford a CHEAPER deal. We've had tweets such as: "No changes or missed payments. No debts bar new cars. £90k equity. Yet no one'd give us a mortgage."
These rules stem from UK regulator the Financial Conduct Authority's interpretation of the EU Mortgage Credit Directive. While Brexit means this may eventually change, many are caught NOW. We've called for an urgent review of the UK interpretation, with some success - see Mortgage Prisoner Result. Please email if you've been trapped.
11. With rates so low and the threat of hikes, should you ditch your fix? Use our Ditch your fix? tool to check if you can save by switching from a pricey fix. It won't work for all, due to exorbitant early-repayment fees - but why not check, just in case?
Eg, if you've a 3.49% fix with 23mths left on a £100,000 mortgage, you could save if you can switch to anything better than a 1.51% fix with a £1,000 arrangement fee, even taking into account £2,800ish extra switching fees (incl early exit charge, legal & valuation fees).
12. Calcs galore to test your options. Now you know typical rates, use our mortgage calcs to compare 'em and see what you could save:
Ultimate Mortgage Calculator
Eight tools to home in on the right answer for you, incl...
Basic Mortgage Calc | Compare Two Mortgages | Mortgage Overpay Calc | Compare Fixed Mortgages | Ditch Your Current Fix?
13. Savings stashed away? Use 'em to bag a better mortgage. The lower your LTV threshold, the better the deal you can get. They drop in 5% chunks from 95% to 60%, so use savings to get into a lower threshold and you can save big. For example...
If you've a £150,000 home, and want a £137,000 remortgage, that's 91% LTV, and the top 5yr fix is 3.98%. But use £2,000 of savings to reduce the borrowing & you'd be at 90% LTV - where the top 5yr fix is 2.54%, saving c. £1,300/yr in monthly payments alone.
See Should I overpay my mortgage? for more, incl who shouldn't do this, plus use the Mortgage Overpayment Calc to see how much regular overpayments can help.
This article first appeared in the MoneySavingExpert.com weekly email on 21 December.