When I first took out a mortgage back in the 1990s I opted for a fixed rate at 7.75% and it looked – and indeed was – a great deal. Today, of course, that looks ridiculously expensive but then interest rates have been really low for ten years. That, however, doesn’t mean you should assume your mortgage deal is the best you can get. Indeed, if you’re sitting on the bog-standard variable mortgage rate it probably isn’t. And what’s more, you need to sort this out sooner rather than later: here’s why.
1. Currently, the average two year fixed and tracker mortgage deals are at their lowest ever levels. Fixed rate deals are when the rate doesn’t move for the term of the fix even if base rate moves. Tracker rates move in line with base rate. According to Moneyfacts, which compiles financial statistics, the typical two year fixed rate is now 2.26% and the average tracker 1.82%.
2. Even though base rate (which is currently 0.25%) hasn’t moved for ages, these rates above are lower than six months ago because competition among lenders has increased. You can benefit from this competition – but for how long?
3. The Bank of England is hinting that base rate might go up soon. Once that happens, says Moneyfacts, lenders might lose a chunk of their borrowers on variable rates to other providers – because if you have a variable rate mortgage, you’re seldom locked in. But if you take out a tracker or fixed rate, then there will be a penalty if you want to get out early. That’s why fixed and tracker rates are currently so competitive: because lenders want to lock customers in.
4. This means if you’re on a standard variable rate mortgage you should find out now about remortgaging. Remortgaging isn’t difficult – most of the work is done by your new lender which will often pay your legal fees. Do remember that to get the best remortgaging deals you’ll need a reasonable amount of equity in your house (that is, the amount you need to borrow shouldn’t be too close to the value of your home).
5. You can use a mortgage broker (London & Country is a free service and well-regarded) or approach a lender direct if you’ve seen a deal you like the look of. It’s easy to find the best current mortgage deals online via a comparison site. You can also find online calculators which let you find out if it’s worth your while remortgaging: remember, fixed mortgage deals often come with chunky application fees of £1,000 or more so this cost needs to be taken into account.
See the SMM guide to remortgaging here.