Could you remortgage and save money?
BY Andy Webb
1st Jan 2015 Managing your Money
Switching to a new mortgage payment deal saves many people lots of money—but is it right for you?
A third of homeoweners plan to cut back their monthly mortgage payments by switching to a new deal this year. The savings can be big, but there are things you need to watch out for.
The low interest rates on mortgages seen recently mean it could be possible to reduce your monthly payments. Research from TSB suggests that someone with a £100,000 mortgage would save £96 a month on average by switching, adding up to £1,152 over a year.
Comparison sites are a great way to get an idea of what deals are available. However, it’s not as simple as just finding a cheaper deal and switching to it.
So how do you figure out if you should remortgage? Here are six key questions to consider:
1. How long is left on your mortgage?
If you’re on a fixed mortgage, you’ll know how long you have left before you need to get a new deal. Fail to remortgage when the deal ends and you’ll be moved to a standard variable rate tariff, which is usually far more expensive.
2. Are there any fees on your existing mortgage?
You don’t have to wait until your current fix ends to get a new deal, but read the terms and conditions to see if there are any penalties. You might be charged for leaving the deal early.
3. Are there fees for the new mortgage?
Likewise, though new deals might have far lower interest rates, any fees might make the overall cost far more expensive. The arrangement fee is likely to be the biggest one, but other costs might include legal and valuation fees.
4. Has your home increased in value?
As well as cutting the interest rate on your mortgage, you might be able to get a better loan to value (LTV).
Mortgage deals are calculated as a percentage of the total value of the house. The lower the LTV, the lower the rates of interest.
When you first bought your home, you might have only had a deposit of ten per cent, meaning your LTV was ten per cent. But if your home is now worth more, the amount you’ve already paid could mean you can get a better deal.
5. How much is left on your mortgage?
If you don’t have a huge amount left to pay, the savings you’ll make in interest might not be huge. In fact, the fees involved could actually cost you more money.
6. What will you do with the money saved?
If you reduce how much you pay, could you put that money back into the mortgage and overpay it? If you want to do this, find out if the mortgage you move to will allow it.
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