If your fixed-rate mortgage arrangement is about to expire, you have two options: remortgage to a new deal or do nothing, in which case your lender will switch you to the SVR mortgage.
WHAT HAPPENS IF I STAY ON AN SVR MORTGAGE?
Almost often, the interest rate on an SVR mortgage will be greater than your fixed rate.
For example, the rate for an average two-year fixed term mortgage in April 2020 was less than 1.5 per cent. The average SVR, in comparison, was 3.5 per cent or higher.
The SVR may also alter at any time, at the sole discretion of your lender.
It can increase due to a number of circumstances, such as changes in the Bank of England base rate, but it's vital to keep in mind that the lender is free to do so at any time and without justification.
Additionally, they have the option to raise it by any amount in theory, even if disproportionately big increases are unlikely (because this would discourage potential clients).
This can make long-term budgeting challenging because you never know how much your mortgage payments can increase in the future. This is why the majority of homeowners prefer to have a preferential mortgage deal.
WHAT HAPPENS IF I DECIDE TO REMORTGAGE?
If you decide to remortgage, you can either look for a better deal from your current mortgage provider or shop around to find a different lender who is willing to give an even better deal.
This is where a mortgage broker can be of tremendous assistance. Based on your unique circumstances, your mortgage broker can examine the entire market and recommend the best mortgage deals for you.
If your situation has changed, your lender would want to know about it because it can have an impact on your credit score and affordability assessment.
Having children, accruing new debt, or becoming self employed are common factors that could impact your ability to obtain a mortgage.
WHAT ARE THE COSTS OF REMORTGAGING?
Early repayment penalty (which could be charged after your fixed rate period has ended)
Arrangement cost (May be expensive)
Booking fee (Usually no more than £200)
Valuation cost, (this is normally free when remortgaging)
Conveyancing costs (again, normally free with remortgaging)
Fee for a mortgage broker (If applicable)
Sometimes the combined fees might potentially outweigh the savings you stand to make through remortgaging to a new deal, so consider this carefully (again, your mortgage broker will help you work this out).
WHEN IS THE BEST TIME TO REMORTGAGE?
Ideally, six months before your fixed rate period expires, you should begin making plans to remortgage. Early action can also assist you in avoiding further costs. Other circumstances may have an impact on the timing of your remortgage.
Three months before you begin making payments, the majority of lenders will let you agree on a rate. However, keep in mind that you might pass up a subsequent cheaper offer, so make sure to investigate and get guidance.
Remember that early repayment penalties may apply after the term of your arrangement and may be added to your fixed rate period.
These fees can occasionally total thousands of pounds, so you could be better off sticking on the SVR for a while rather than remortgaging right away.
IS IT WORTH GETTING A NEW DEAL?
Remortgaging might not always be the wisest course of action. Therefore, even though it's a good idea to start thinking about remortgaging in advance, it's crucial to take your time about it because there are times when it's best to keep with what you already have.
Sometimes having an SVR mortgage won't hurt you too much, and it can even make life easier for you.
For instance, there are normally no early repayment fees on an SVR mortgage if you are in a position to pay off your mortgage with some sizable overpayments (for instance, from an inheritance).
In a similar vein, if your total debt is less than £50,000, any extra mortgage fees could eat into any savings you might otherwise you stand to make, and many lenders won't even consider providing you with a mortgage at this level.
Additionally, lenders could be reluctant to offer a remortgage if your financial status has significantly altered, such as if you or your partner no longer have a job or you have acquired new debt.
Staying with your new SVR mortgage may be easier if you still feel you can comfortably manage the repayments, at least until your circumstances change again.
THINKING ABOUT REMORTGAGING?
Whether you intend to revamp your property portfolio or transform your home into your dream space, to start a conversation about how we could help, speak to Cedar Crest Ltd.
To find out more:
Cedar Crest Ltd – telephone UK T: +44 (0) 203 883 1017,
HK T: +852 6645 4462 – email info@cedar-crest.co.uk
Your home may be repossessed if you do not keep up with repayments.
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