Craig Skelton explains all about remortgaging for a better rate.
At the end of an initial rate you have with your lender, whether that’s a two-year fixed, three- year or five-year fixed rate, you will be placed onto what we call the standard variable rate or the SVR. That’s governed by the lenders, and it’s not necessarily the best rate.
In answer to the question, can you remortgage to get a better rate, then yes, in most circumstances you can, and the new rate will be a lot better than the SVR.
This is a myth – generally speaking they are pretty much the same. It’s important to make sure you’re reviewing your mortgage regularly, looking at what remortgage rates are out there, but generally speaking remortgage rates are very similar to standard purchase residential mortgage rates.
Getting a lower rate than what you are currently on might not be possible. The market changes, and the rates on mortgage products will be different to what they were two, three or five years ago.
But if you don’t do anything you will just switch on to the standard variable rate which, as we’ve established, isn’t the best interest rate out there in the market. You will always be able to remortgage at a lower rate than the SVR, even if it’s higher than the rate you’re on at the moment.
The loan to value is the amount you owe on your mortgage against the value of your home. Say your home is worth £100,000, and you’re borrowing say £90,000 on a mortgage, your loan to value is 90%.
You’ll be paying more as a 90% customer compared to an 80% customer, because the risk is higher to the lender. Reducing your loan to value will get you a better rate – they generally go down in 5% chunks. The highest rates apply on a 95% to 85% loan to value, then they will drop once you go below 85%, then again at 75% and so on until you get to around 60%. At that point, the rates stay the same – whether you have a 10% or a 50% loan to value, you’ll be on the best rates out there in the market.
Absolutely. When your initial deal comes to an end, if you don’t do anything you go on to the standard variable rate. That’s not fixed – the lender can write to you and change that whenever they like.
But you can remortgage so that you continue to stay on a fixed rate deal if that’s what’s right for you. You can again choose the fixed rate period – two, three, five, or 10 years.
Be aware as a customer of when your remortgage date is up. Time passes so fast. You don’t want the end of your fixed rate deal to creep up on you, because all of a sudden you’re in a panic buy situation.
In a panic buy situation you’re more likely to just transfer your deal to another with your existing lender. That’s not always the best value, so it’s better to be prepared.
If your deal’s coming to an end in June, start to look at remortgaging when you’re taking the Christmas decorations down. It’s good to start the process around six months before the end of your deal.
But even if you do end up going onto the SVR, it’s not the end of the world – you can still remortgage at that point. It just means that you’re going to pay the higher interest rate for a month or two. We all know money is important and I would rather you be paying a lower interest rate and having more in your pocket.
As we sit here today in May 2022, the typical SVR is 4.5% right now, whereas you can remortgage on a fixed rate of around 2.5% depending on your loan to value.
That’s around half what you would be paying on the standard variable rate. It’s far better to be paying that money off your capital of the mortgage rather than the interest.
In terms of how much you could save, it’s hard to quantify, because it depends so much on your mortgage. But the main thing to understand is that the impact of not remortgaging could be massive.
The main thing is to be prepared. Make sure you’re aware of when your initial interest rate comes to an end and then just reach out to a broker. Don’t take the seemingly easy option and switch to a new deal from your existing provider.
With Renew My Mortgage there’s no charge to look at your existing deal. We’ll compare it with the rest of the market, giving you peace of mind that you’re fixing your interest rate for two, three or five years on the most suitable product out there in the market for you.
These things can make a difference. If you’re not paying the best rate it might mean an extra £20 a month on your mortgage payments. £20 a month might not sound a lot, but that’s £240 a year. Over five years that’s £1200 that you could actually be paying towards your mortgage or keeping for yourself, rather than paying to the bank.
Don’t bury your head in the sand. Be organised, look at it six months ahead and get in touch. We’ll do all the research for you, free of charge, so you’ve got peace of mind that your deal is the most suitable in the market for you.