A Financial advisor can give you many tips on how to cut your expenses and save money - but one technique that stands head and shoulders above the rest is switching to a cheaper mortgage deal. After all, your mortgage is likely to be the biggest loan you have, so every tiny saving you can make is likely to add up to a lot of cash. So if your introductory period is about to expire, here are five good reasons why you should be rushing to snap up a cheap re-mortgage deal, now!
1. Avoid paying your lender’s SVR
Though you may not remember, when you signed up for your mortgage, chances are you agreed that after your low introductory period expired you would be happy to be switched to your lender’s Standard Variable Rate (SVR). OK, maybe “happy” wasn’t the word you’d have chosen, but that’s what’ll happen.
However, for most people, this switch will come as a real shock. Imagine you bought your house two years ago and signed up to a 25-year, repayment mortgage at 5%. Those two years are now up and your lender switches your outstanding £150,000 mortgage to its SVR of 6.75%. Well how bad can that be, you wonder? Unless you’re very wealthy, it’s more than likely to hurt quite a bit. Your original monthly payments will have been around £877. However, switching to your lenders SVR would increase these by nearly a quarter (a whopping £195) to £1,072. Plus, over the course of the mortgage term you would end up paying an extra £43,000 before you’ll own your home.
2. Reduce your monthly outgoings
Re-mortgaging not only provides a way of avoiding your lender’s SVR, it can also mean finding a cheaper deal than the one you’ve got. For example, if, when you took out your mortgage it was during a time when interest rates were high, chances are you’ll be paying a higher rate. Switching from a deal at 5.75% to one of around 4.75% could seriously reduce your monthly payment, and thus lessen your monthly outgoings, too.
3. Pay off your mortgage, faster
How would you fancy paying off that mortgage earlier? By re-mortgaging to a cheaper deal this is easily achieved. Say you have a 20 – year, repayment mortgage of £120,000 at 5.5%, which you re-mortgage to a cheaper deal at 4.5%. Your monthly payments will decrease by £66, from £825 to £759.
If you decide to pay that extra £66 into your mortgage each month – by overpaying this amount, you reduce the total amount of interest payable by nearly £8,500 and shaved two and a half years off your mortgage term too. This means you’ll have paid off your mortgage in just 17 ½ years, rather than 20!
4. Make your mortgage payments predictable
If you currently have a variable or tracker repayment mortgage, you may find yourself watching the bank of England’s decision on interest rates quite closely. After all, although every quarter point decrease could spell a reduction in your mortgage payments, an increase will almost certainly cause a rise. Indeed, interest rates were raised five times between November 2003 and August 2004, which significantly increased mortgage payments for many.
However, for those on strict budgets, uncertainty in monthly outgoings is a real headache as this extra money has to be found from somewhere. Re-mortgaging to a fixed rate deal when your introductory period is up, is often well worth doing as you can benefit from knowing exactly how much you will have to pay each month.
5. Benefit from current cheap deals!
And the best thing is, now is a great time to re-mortgage as there are so many great deals out there! So don’t waste anymore time, call Mortgage Quest where you can check out the best deals and get yourself a better mortgage.