Many people are seeing their current mortgage deals coming to an end and are thinking about moving to a new mortgage to save outgoings. But is it always the case that a lower rate mortgage is cheaper in the long run?
On the face of it, if you can reduce your monthly mortgage payments by 0.5% then you could be saving yourself a lot of monthly expense. This could be a reduction that you can spend elsewhere or if you are unlucky and expecting a huge rise in mortgage costs, just a reduction in the increase of the monthly cost.
Using mortgage comparison tables tell you what mortgage is the charges the least on the market at this moment, but is it appropriate for you? More importantly, will it actually reduce your outgoings in the long term?
Although interest rates have fallen at the moment and are expected to continue this way for some months, some experts believe a reduction is on the cards in the short term. So if you lock into a 2-year, 3-year or longer mortgage with a fixed rate, by the end of the term you might be paying more than a variable mortgage if you had stuck it out.
On the other hand, we might be surprised by a recovery and interest rate rises and then you would be better off. That’s the nature of this game. But this isn’t the only area in which you could be paying a lot more than you need to.
Look carefully at those best mortgage offers that you see in mortgage charts and read the small print. Look for the upfront fees – arrangement fees, legal fees etc. Take a look at your existing mortgage, how much is involved in ending that? There may be exit and deed release fees. These fees may also exist in the new mortgage – are they significantly higher than now – that’s effectively a cost for the future?
When you look at these fees, how much will you be paying to remortgage? Many lenders allow you to add this to the borrowing, but then you are paying further interest on them for the life of the mortgage. Even more outgoings each month!
If you are able to pay these fees at the time of the move then in the long term that way is going to be cheaper. But then look at your existing mortgage. If you are having to pay £2,000, maybe even more to remortgage, could you instead pay off a small chunk of the mortgage, or at least put that cash away in a high interest account instead? Then take a look at how that would reduce your payments – or work out what your net payments are after the money put aside earns some interest.
Changing to a new building society may not always be the right thing to do. First, speak to your lender and see what monthly charges they can get you down to with your existing mortgage. Then, instead of relying on tables to compare mortgage rates, speak to a few mortgage brokers and get them to do all of the leg work for you and write down exactly what you will be left paying each month.
RSS FEED
