Your mortgage is probably your biggest financial commitment. It could provide a rewarding investment as well as a roof over your head.
But although you might expect it to be expensive, there’s no reason to pay too much for your mortgage, and many thousands of people do exactly that.
At Continuum, as mortgage experts, we believe that its worth checking that you are not among them.
Why do people pay too much for their mortgage?
There are several reasons why you may be paying more than you need to borrow to buy your home.
The first is a fairly obvious one. You didn’t shop around for the most appropriate deal when you took it out in the first place.
Shopping around is no easy matter. If you go into a high street lender, they will be happy to find you a suitable deal – but only from the range they have available. There are actually several hundred lenders that make up the lending market, and it can be impossible to see all the deals that you might be able to choose from. Some are not even advertised to the general public.
This is of course why it pays to come to an independent adviser, like Continuum. We can search the entire lending market to find the deal that is most suitable for your particular circumstances.
The second reason why people pay too much is a little more complicated.
You might have had a good deal once…
You might have been lucky and found a suitable mortgage deal when you bought your home. But you may not have it now.
The problem is that lenders are happy to hook you with a good introductory rate for a year or two. But when your fixed rate runs out, you will automatically be switched to your lender’s standard variable rate, or SVR. These are often the highest on the market.
The average SVR is currently 7.85%, according to the comparison site Moneyfacts. On a 25-year £250,000 mortgage, monthly repayments would be about £1,904 — £22,848 a year.
By comparison the average rate for a two year fixed deal is 5.52%, which would make monthly repayments for the same mortgage size and term about £1,538, or £18,456 a year.
The SVR would be £366 a month, or close to £4,300 a year more expensive.
The simple truth (which your lender might not explain to you) is that you are not obliged to stick with them after your fixed period has ended. If challenged, they may offer you an alternative and better deal. But you could be better off still by remortgaging.
What exactly is remortgaging?
Remortgaging is simply taking out a new mortgage on your home and using the money to pay off your original lender. As long as you are out of your fixed period, there should be no penalty - and you can take advantage of your new lenders willingness to offer you their best possible rate to ensure you become their customer.
But the savings don’t stop there.
You will probably have paid off some of the capital you originally borrowed and so borrow less the second time around. That, combined with house price inflation, which means your home could be worth more than you originally paid for it, means that your new borrowing has a lower ratio of loan to value.
Loan to Value, or LTV, is important, because the lower it is, the better deal you are likely to be offered. If you already own half your home, the rate to borrow the money for the other half would be much lower than the rate to borrow 100% of its value.
This is actually because the lender sees you as less of a risk, but the benefit is that they may be able to offer you the loan you need for less.
So how can you remortgage?
If you are one of around 1.6 million fixed rate borrowers with a deal ending in 2025, or are already on your lenders SVR, call us at Continuum.
We can find the most appropriate deal for you, help you with your application, and generally look to ensure that you stop paying too much for your mortgage, as soon as possible.
Why not make that call today?
Interest rate impact: Savers hit hard by rate cuts | moneyfactsgroup.co.uk
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to a particular mortgage product and you should seek independent financial advice before embarking on any course of action.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Your home or property may be repossessed if you do not keep up repayments on your mortgage.
