Is it in your best INTEREST to re-mortgage?



Your home may be repossessed if you do not keep up repayments on your mortgage.

With mortgage rates continuing to drop the competition amongst lenders is fierce. The latest figures from the council of mortgage lenders, published on May 24, show re-mortgaging in London has jumped to an eight-year high as thousands of existing borrowers are switching in order to lock into a great fixed rate deal.

What affects mortgage rates?

There are several factors which affect fixed rate mortgage prices but it’s usually dependent on the banks getting their hands on cheap money to lend out. This normally comes from savers, or borrowing from other banks at an agreed rate for a specified period, ‘a swap rate’. These swap rates react to expectations of future interest rates and inflation, which affect the price of mortgages.

Action taken by the Bank of England can have an impact too. The Bank has made it clear in the past that if runaway house prices are a risk and ultra-low mortgage rates are a cause, the latter will be policed away – by heaping new costs or capital requirements on the banks. Lenders could then pass on the increased cost of funding to mortgage customers by increasing their rates.

Fixed or variable rate?

If you take out a fixed-rate mortgage the interest rate you pay will be fixed for an initial period, regardless of rate changes made by the Bank of England or moves in the markets.

Fixed rates are usually for two, three or five years. Once the fixed period ends, borrowers are pushed on to the lender’s “standard variable rate”, which can be much higher.

As the name implies, variable mortgage rates can vary during the mortgage term, meaning borrowers will not have the security of knowing how much their repayments will be every month. However, if the British economy dips, interest rates will probably decrease making the repayments substantially cheaper. Also, because the mortgage comes with the uncertainty of interest rates either rising or falling in the future, the initial rate is often much lower than with fixed mortgages.

 

There are pros and cons for both fixed and variable rate mortgages.

Pros of a fixed rate mortgage:

-You know exactly what your mortgage payments will be each month making it easy to budget for

-Your payments won’t increase over the period of the fixed term, regardless of how high interest rates may be

Cons of a fixed rate mortgage

-If interest rates drop your payments wont, they will remain the same

-If you want to get out early you will usually incur high penalty fees

 

Pros of a variable rate mortgage

 

-There are generally no Early Repayment Charges, which allows for flexibility if you want to overpay, pay off the mortgage early, or remortgage to a new deal

 

-When interest rates are low, your payments may go down

Cons of a variable rate mortgage

 

-If interest rates go up, so will your payments. Even an increase of just 1% could add up to £83 a month to your repayments for a £100,000 mortgage

Anyone who is considering switching their mortgage should speak to a whole of market mortgage adviser first who will be able to advise them based on their individual situation and requirements.

Your home may be repossessed if you do not keep up repayments on your mortgage.