Remortgage to cut your monthly payments
Mortgage companies often offer introductory ‘teaser’ rates to new customers, either at a lower variable-rate, or a fixed rate for an introductory period.
Once this is up, your monthly payments can rocket as your deal will likely revert to your lender’s standard variable rate (SVR) – which is usually much higher. It can pay to shop around for cheaper deals from other lenders.
Of course, moving to another mortgage provider will involve going through its application process and affordability criteria. You may incur fees in the process so don’t make any rash decisions. Instead, do your homework and make sure a new deal warrants your time and efforts.
To help you with your research, we probe the market each week to find the most competitive deals for you, whether you’re looking for long- or short-term fixes, variable-rates, or interest-only deals.
Our mortgage hunter is looking to remortgage on his £200,000 property, and will be looking to borrow £100,000 over 15 years – so they’re looking for a 50% loan-to-value (LTV) deal. Our buyer has decided to pay any valuation or arrangement fees up front to avoid being charged extra interest.
Woolwich from Barclays has a 1.65% deal until April 2019. It also has no fees, and £250 cashback. Monthly repayments are £628 and the annual cost is £15,000. This reverts to a 3.74% SVR when the fixed rate expires.
Another good option is the two year fix from Skipton Building Society. This is a 1.74% product, fixed until March 2019. Monthly payments are £632, giving an annual cost of £7,560. This product also comes with £250 cashback and is available up to 60% loan to value.
Long term fixes
At the moment it’s still relatively cheap to fix your mortgage repayments for the longer term. The best deals are available for well under 3%. However, monthly repayments are much higher than shorter fixed-rate terms, so it only makes sense if you expect rates to rise in the next few years.
Coventry Building Society has the most attractive five-year term. The rate is 1.99%, fixed until 31 March 2022 and there’s no fee. That’ll cost £643 a month and £7,757 each year. Our buyer will revert to a rate of 4.24% after this fixed period.
Alternatively, Woolwich from Barclays also has a ten-year fix at 2.59% but it comes with a £999 fee and no cashback. Although the fee may sound expensive, it’s not too bad for a ten year fix. The repayments will be £671 per month, or £8,171 on an annual basis. The SVR is 3.74% when the fixed rate expires, assuming no changes.
Woolwich, Barclays’ mortgage arm, will lend at 1.44% over the Bank of England base rate for two years, currently 1.69%. That’ll cost £629 each month. There are no fees and £250 cashback, after that, the 3.74% SVR kicks in.
While interest-only offers can be tempting, you’ll need a solid plan to pay off the capital at the end of the loan. You should also factor into your decision-making the interest you owe won’t diminish as you won’t be paying off your debt as you would with a capital repayment mortgage.
Not all providers will lend on an interest only basis, so your best bet could is likely to get a mortgage via a broker. Indicative rates can be found in our mortgage comparison tool.
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Every mortgage lender has a standard variable rate of interest, or SVR, on which it bases all its mortgage deals, including fixed and discounted rate and tracker mortgages. When special deals come to an end, the terms of the deal usually state that the borrower has to pay the lender’s SVR for a period of time or pay redemption penalties. The lender’s SVR is, in turn, based on the Bank of England’s base lending rate decided by the Bank’s Monetary Policy Committee (MPC). Every time the MPC raises its rate, mortgage lenders generally increase their SVR by the same amount but when the MPC lowers its rate, lenders are often slow to pass this on or don’t pass on the full cut to borrowers.
A catch-all phrase that can range from assessing the price of a property or vehicle before offering it for sale or the net worth of assets in an investment portfolio to the prices of shares on a stock exchange.
A “traditional” mortgage, where the monthly repayments entail of repaying the capital amount borrowed as well as the accrued interest, so that during the loan period the capital debt is gradually paid off so by the end of the term the mortgage has been fully repaid. One advantage of a repayment mortgage is that it removes the risk of having a parallel investment (such as an endowment policy or pension), the performance of which is dependent on the stockmarket, such as with an interest-only mortgage.
Loan to value
The LTV shows how much of a property is being financed and is also a way to tell how much equity you have in a property. The higher the LTV ratio the greater the risk for the lender, so borrowers with small deposits or not much equity in the property will be charged higher interest rates than borrowers with large deposits. The LTV ratio is calculated by dividing the loan value by the property value and then multiplying by 100. For example, a £140,000 loan on a £200,000 property is a LTV of 70%.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.