Review your mortgage
If you are paying an uncompetitive high interest rate on your mortgage, you are wasting money.
Reviewing your mortgage may seem daunting but below I introduce an online tool that is not only easy and enjoyable to use but shouldn't take you more than 5 minutes to complete (so you could even do it in your lunch hour).
The Money Advice Service, which is a government backed initiative, has a number of useful tools. Their online mortgage tool being a case in point.
The tool helps you search for the best mortgage deal on the market to suit your circumstances, whether you are remortgaging, a first-time buyer or moving house.
The calculator will help you find the the best mortgages and will show you their
- initial borrowing rates
- the monthly cost in £
- the tie-in periods
- the APR rate for the full term of the mortgage
- the relevant charges and fees
What the calculator does not do is tell you the type of mortgage that may suit you. So read the following guide which should help you make up your mind. If you are at all unsure which type of mortgage is right for you then seek professional mortgage advice.
Assuming you are happy with your choices and have found a good deal then simply contact the lender to get the ball rolling. Of course the one key factor in making a decision on your mortgage (especially if you want to fix) will be where interest rates are likely to be in the future. To help you with this I provide a monthly commentary on the future direction of the bank base rate. If you sign up to my newsletter (at the top of the column to the right) my interest rate predictions and other articles will be delivered straight to your inbox every 2 week.
However, one word of warning, make sure you check the implications of switching your mortgage from your existing lender, such as early redemption penalties.
What type of mortgage is best for you?
There are number of different types of mortgage available on the market and the type that is best for you will depend on your particular circumstances or preferences.
Here are the main mortgage types:
Standard variable rate
This type of mortgage has an interest rate that is variable over time. This means that as interest rates go up so will the monthly payments, conversely if interests go down so will your monthly payments.
This type of mortgage is probably best suited to someone who is not overly concerned about a change in monthly payments or who believe that interest rates may go down in the short term.
Fixed rate
This type of mortgage has an interest rate that is ?xed for a set period of time, usually 2-5 years. After this period the interest rate will either return to a variable rate or the lender will offer a further ?xed rate term.
It is important to note that the ?xed interest rate is set taking a view on future interest rates, and therefore is likely to be above the lender’s current variable rate.
This type of mortgage is probably best suited to someone who wants to be certain about the level of their mortgage payments over time.
Discount rate
This type of mortgage has an interest rate that is discounted for a period of time, usually 1 or 2 years. After this period the interest rate will return to a higher rate, set by the lender, for a ?xed period of time (lock-in period). It is important to note that during this set period at the higher rate the borrower cannot move their mortgage to another lender without incurring a penalty charge.
This type of mortgage is probably best suited to someone who is very tight on their budget and needs their mortgage payments to be, initially, at the lowest level possible. It is very important to check the details of any lock-in period to make sure you are comfortable with the period and likely future chargeable interest rate.
Capped rate
This type of mortgage has an interest rate similar to a variable rate mortgage but the interest rate cannot go above a certain level as set out on the terms & conditions of the loan. This capped rate will be offset by the lenders charges or lock-in periods so it is important to check all the details thoroughly.
This type of mortgage is not that popular but probably best suited to someone who is looking for a degree of certainty regarding their mortgage payments over time.
Offset
This type of mortgage involves setting up a bank account with the lender and any interest accrued from savings in this account will be offset against the interest payments of the loan on a monthly basis. The interest rate may be variable, discount, ?xed or capped depending on the lender’s criteria.
This type of mortgage is best suited to someone with a reasonable amount of savings so that interest being offset is worthwhile.
It is important to check that the interest rate offered on any savings account is competitive with similar accounts in the marketplace, if not then keeping your savings separate may be a better option.
When reviewing various mortgage options make sure you ascertain all the extra costs involve such as arrangement fees as these can make a big difference to the overall cost.
What cost are involved in securing a mortgage?
There are a number of costs involved in securing a mortgage:
Arrangement fee
This is payable to the lender when an application for a loan is ?rst submitted and is not refundable if the loan does not proceed.
Booking fee
This can be payable to the lender in addition to an arrangement fee for some ?xed loan deals.
Higher Lending Fee
This is a charge for insurance to protect the mortgage lender (not you) if you borrow more than a certain amount. If the amount you want to borrow is a high percentage of the property’s value, the lender may require you to pay for insurance to make sure they will recover all their money.
