You may have noticed that interest rates are quite low. In fact they are the lowest they have ever been. Why should you take notice of this? Well, the lower the interest rate, the cheaper your mortgage can be. Here I’m going to talk you through why and how you can take advantage of this:
1: When you take out a mortgage, you pay a deposit. The bigger that deposit, the cheaper the mortgage deal. Over time, your mortgage decreases as you pay off the capital, and (hopefully) your house price increases over that time. So, now you have a house with a higher value, and a smaller mortgage (known as loan to value or LTV). If you originally had a 10% deposit on a £100,000 house (90% LTV), when you purchased, you would have got a fairly high interest rate on your mortgage. If you now have an £85,000 mortgage value, against a house worth £150,000 (75% LTV), you will find that the mortgage deals available to you are considerably cheaper – the rate can be nearly 50% less! This means you can either pay less per month, or keep the same payments and pay off the mortgage quicker!
2: You probably got a deal when you took out your mortgage – normally a fixed rate for certain period of time – either 3 or 5 years typically. This deal is usually below the banks normal rate, known as the Standard Variable Rate (SVR). When the deal comes to an end, you get put back on the SVR. This means your payment goes up! A typical 2 year fixed deal is around 2.5-3%, whereas SVRs are anywhere from 3.99-5.25%. If you combine this with the reason in method 1, you can see that you could get a much better deal.
3. If we assume both 1 & 2 are happening, you may find yourself in a position where you could be saving a lot of money, and you have increased equity in your house. You might want to use that money to make home improvements, pay for a big event, or consolidate existing debts. You can re-mortgage to take the extra money out of your house, possibly on a better rate than your existing deal.
If you think you might benefit from a cheaper mortgage, then speak to us, your independent mortgage adviser who can give you all the options and talk you through process.