Homeowners will soon face the prospect of paying 3% on even the cheapest mortgage deals, but you can potentially beat rising interest rates by getting a new deal six months early
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Homeowners could save thousands of pounds by renewing their mortgage early — but moving fast means bigger savings.
Mortgage rates are currently rising due to several increases in the Bank of England’s base rate.
This interest rate is factored into the cost of new mortgages. Last month the bank raised interest rates to 1%, the highest level in 13 years.
This rate is likely to rise further as the Bank of England tries to combat rising inflation hitting UK households.
The bank is expected to hike interest rates again tomorrow.
This means more pain for homeowners, who are quick to face the prospect of paying up to 3% a year.
An analysis by broker L&C Mortgages last month found that the best two-year mortgage with a 60% loan-to-value ratio was 2.36%, up from 0.89% in October last year.
The top 5-year deal cost 2.46%, compared to 1.05% last October.
Someone with a £450,000 25-year home loan tenored for 25 years at 1.05% would be paying £1,706 a month.
Someone with the same mortgage would now be paying around £1,987 a month for the best 2.36% offer – £281 a month more, or an extra £3,372 a year.
And that would rise to £2,134 a month, or an additional £5,136 a year, if two-year mortgage deals hit 3%.
Setting this mortgage at current interest rates means a saving of £3,002 a year if interest rates even hit 3% this year.
Someone with a small £100,000 25 year mortgage at 1.05% would be paying £372 a month.
Someone with the same mortgage would now be paying at least £442 a month for the best deal at 2.36% – an extra £74 a month.
That would rise to £474 a month, or an additional £102 if two-year mortgage deals rise to 3%.
But many Brits don’t realize they can renew their mortgage up to six months before it expires.
Many lenders allow you to start a new deal early, which means you can save some cash before mortgage rates continue to rise.
Always consider any exit fees when exiting your mortgage business early.
Closing a new deal before your current one ends is good for a whole different reason, too.
If your mortgage expires and you don’t agree to renew with your current lender or switch to a different one, you’ll end up paying a higher interest rate.
This is because you are falling on your current lender’s standard variable interest rate, or SVR.
This rate is typically around 2% to 2.5% above the Bank of England base rate – meaning staggering fees of up to 7% or 8%.
Last month, MoneySavingExpert founder Martin Lewis also highlighted the problem of rising mortgage rates.
Lewis said those with SVR tariffs have about 30 days to look around before their bills go up, while others with fixed offers may want to consider committing to a new tariff.
Debt restructuring tips from Martin Lewis
1. Find out the details of your current mortgage
This includes the interest rate, monthly repayments, and outstanding debt.
Homeowners should also find out what type of mortgage they have and the term – how long you have to pay everything back.
Most importantly, also check to see if you have a prepayment penalty — a fee that’s due if you switch too soon.
2. Look at the cheapest offer from your current lender
Taking out a new mortgage with your existing lender is called a “product transfer.”
The main benefit is that your lender can avoid the usual affordability checks they perform on new customers.
It can also mean paying lower fees and it’s less of a hassle in terms of paperwork.
3. Compare what offers are available
Once you know what your lender’s best offer is, go and check out their competitors. A mortgage broker can help, although many charge a fee.
4. Use online calculators to find the best deals
MoneySavingExpert has tools to help you find the best mortgage for you:
5. Work out the best offer for you – and do your best to be accepted
When you refinance, a lender performs financial checks on you.
Lewis said making sure you have good credit can help improve your prospects.
He advised the British to do so Check their credit file (free) to ensure there are no errors.
Reduce loan applications and pay off debt when you can.
It can also help to spend as little as possible in the months before applying for a mortgage.
https://www.mirror.co.uk/money/homeowners-could-save-up-3000-27239491 Homeowners could save up to £3,000 by remortgaging early - but you've got to be quick