Whether you’re on a fixed rate mortgage, or a tracker or variable rate deal, there’s a lot to be concerned about right now. When the Bank of England increases its base rate, mortgage rates follow suit.
If you don’t remortgage when a fixed deal concludes, your interest rate converts to the lender’s standard variable rate (SVR) – a level that’s often consistent with the BOE’s current rate. Likewise, those on tracker mortgages will see their monthly repayments rise in accordance with the BOE.
Therefore the question of whether to remortgage now, or wait until further down the line is a big question, and one that requires further context – however there is a long and short answer to this.
The short answer is that borrowers who are reaching the end of their fixed term should lock in a new mortgage deal and remortgage as soon as possible. With the BOE’s base rate set to increase to at 6% in 2023, all of the best available mortgage deals will soon dry up, leaving only packages with high interest rates.
The longer answer is that whether you should remortgage or not, actually depends on several different factors, including:
The details of your mortgage deal
How long your fixed rate package has before it expires
Your financial situation
For example, if you’re a fixed rate borrower, and you’re a year to six months away from the end of your fixed term, you should probably start thinking about remortgaging. If you’re more than a year away from the end of your fixed deal however, things can get a little more complicated, as you can’t leave a fixed rate mortgage deal early without incurring an Early Repayment Charge (ERC).
If you’re a fixed rate borrower and are more than a year away from the end of your fixed deal, consider the following things before remortgaging:
Check if your lender charges an ERC – if they don’t, you’ve landed on your feet and can switch without the additional expense
Enquire with your lender about a product transfer – some lenders may let you switch from your current deal to a new one, without the cost of an ERC
Evaluate your Loan to Value (LTV) ratio – the cost of an ERC depends on your LTV, so if you have a lot of debt outstanding, there’s no point remortgaging early as the ERC will be so large that you won’t be saving any money
Overpay your mortgage – most lenders will allow you to overpay by up to 10% each year, allowing you to negate your loan’s rate of interest and reduce your LTV much more quickly. This course of action is particularly useful for those borrowers who are unable to remortgage due to high LTVs and ERCs
Consult a mortgage broker – ultimately, you need to talk to an expert in mortgages. Reliable mortgage brokers can help you find remortgage deals that are tailored to your circumstances, giving you the confidence to make an informed decision
Those with a tracker mortgage on the other hand, should remortgage as and when interest rates are expected to rise. As your tracker’s end date approaches, keep an eye on the news so you know what to expect.
If you’re on a tracker mortgage, you should also always exact an agreement in principle from your new provider. This should lock in your mortgage deal for at least six months, allowing you to make the most of what could be lower interest rates.
Ultimately, no one can predict what the future may hold, and while hindsight is a wonderful thing, no one can truly say which way the market is going.
If you are going to remortgage, make sure to assess your financial situation before doing so, and make sure you can afford it. While it could save you a lot of money, it can also cost you a lot of money, especially if you’re unprepared for exit fees.”
Comments supplied by Colby Short, CEO and Co-Founder of GetAgent