Many homeowners will see their mortgages mature before the end of spring. April will be the second-biggest month of 2020 for mortgage deals ending, with £21bn due to mature. “The large loan value reflects the fact that the mortgage market was particularly competitive when the deals were taken out,” says Adam Williams in The Daily Telegraph.
When your deal matures you’ll be moved onto your lender’s standard variable rate (SVR), which is typically far more expensive. If you secured a particularly competitive deal, this could mean a big jump in your monthly repayments when your deal ends. You can avoid this by shopping around and locking in a low rate in advance, as mortgage offers usually last for several months.
Avoiding a shock when you get your bill isn’t the only reason to make the effort to remortgage when your current deal matures. If you have been making capital repayments each month – not just paying off interest – then you will have built up more equity in your house, which means you may be able to access an even better deal than your current one.
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Lenders reserve their best interest rates for those borrowing the smallest amount as a percentage of the value of their house. If your house is worth £500,000 and you want to borrow £300,000 that’s a loan-to-value (LTV) of 60%. You’ll be offered a lower interest rate than someone seeking to borrow £350,000, an LTV of 70%. The longer you own a property – and meet your mortgage repayments – the lower your LTV will become.
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Keep remortgage fees in mind
When you are shopping around for a new mortgage, don’t just focus on the interest rate. You also need to consider the fees associated with the mortgage.
“Some lenders make up for the low interest rates by charging high fees, which can be as much as £2,500,” Sarah Guershon of money.co.uk told the Daily Express.
While interest rates have dropped in recent years, fees have been rising steadily. As these are often added to your mortgage debt, they can easily wipe out the benefit of a marginally lower interest rate. The best remortgage rates on offer at the moment are 1.19% for two years with a £995 fee from NatWest, according to comparison site Moneyfacts. Santander has the lowest rate on offer for five-year fixes at 1.39% with a £1,499 fee.
When you opt for a longer fix, not only are you locking in a low rate, but you are also avoiding remortgaging fees for longer.
Just think hard about whether you may want to move during the mortgage period. Some mortgages can move with you, but others can’t be transferred. If you want to leave the mortgage early you will face hefty exit fees.
