Remortgage your property and you could save over £2000 by this time next year.
We're well into the festive season, and many of us will now be thinking about how we can save the pennies to spend on Christmas 2008.
The good news is that, if you're a homeowner, you may be able to save yourself thousands of pounds in the next 12 months - by remortgaging. Recent research has shown that one in five homeowners - over two million people - are languishing on their lender's Standard Variable Rate (SVR), which is usually at least two per cent higher than the most competitive rates on the market.
If you took out your current mortgage a few years ago and have never remortgaged, you may find you are paying the SVR without knowing it. This is because your mortgage will automatically revert to the SVR when your introductory fixed or variable deal comes to an end (so after two years, if you originally took out a two-year fixed rate).
A two per cent difference in your mortgage rate might not seem like a lot, but it could actually cost you more than £2,000 a year.
Here's an example of how much you can save by remortgaging from a typical SVR to a competitive two-year fix from Cheshire Building Society (one of the Best Buys in our Fixed Rate Mortgage Comparison table):
Amount borrowed | Rate | Arrangement fee | Monthly repayment | Total repaid over two years |
|---|---|---|---|---|
£150,000 | 7.75%(typical SVR) | n/a | £1,132.99 | £27,191.76 |
£150,000 | 5.49% | £999 | £920.24 | £22,085.76 |
So, even taking into account the £999 fee, by switching from the SVR to a competitive two-year fixed rate, you would save yourself £212.75 a month or £2,053.50 a year for two years. That's a total saving of £4,107.
Obviously, not every mortgage borrower will be in a position to make this kind of saving. But if you are currently paying your lender's SVR, there's a good chance you can make significant savings if you remortgage.
What's the best deal?
If you do plan to remortgage, which type of mortgage should you go for?
One option is to take out a variable rate, such as a tracker or a discount rate mortgage.
A tracker will track changes in the Bank of England Base Rate, which is widely expected to fall by up to 0.75% over the coming months, meaning lower monthly mortgage payments.
Similarly, a discount rate mortgage offers you a percentage discount off the lender's SVR. This is likely but not guaranteed to fall when the Base Rate falls.
But if you do opt for a variable rate deal, be aware that if the Base Rate rises over the course of your mortgage deal, your monthly payments are likely to increase. This is a risk you would not have to take if you opted for a fixed rate deal, where your payments are fixed for the course of the deal, no matter what happens to interest rates.
Therefore a fixed rate may well be the best option for you if you are on a tight budget and would struggle if your payments suddenly went up one month. However, bear in mind that with a fixed rate, you won't benefit from any reductions in interest rates.
Speak to a broker
The fact is, with mortgages, there is no such thing as 'one size fits all'. The best mortgage for you will very much depend on your individual circumstances, which is why it is often a good idea to speak to a fee-free broker and get professional advice about what you should do.
There are thousands of competitive-seeming deals around at the moment, but some have hidden fees and charges attached. A broker will be able to compare the true costs of different deals for you and ensure you keep the cost of remortgaging to a minimum.
Hopefully, that way, you'll have a bit more in the kitty by the time Christmas 2008 comes around.
> Try using The Motley Fool Mortgage Service to help find the right deal for you.