Is now a good time to re-mortgage

Posted by Sharon Yewen in Mortgages on 24 January 2013 - Sharon is Financial Controller at checkmyfile.

It used to be good financial advice to re-mortgage every few years in order to get the best deals available and save money on monthly mortgage payments. During the last few years with cheap Standard Variable Rates (SVRs) following cuts in the Bank of England’s base rate, there has been not much point in swapping lenders and many borrowers have been happy to remain where they are, especially after taking into account the fees (arrangement fees, valuations, legal costs and more) incurred in re-mortgaging.

Recently though, the Council of Mortgage Lenders has predicted that the slump in re-mortgaging seen last year will be reversed in 2013.

There could be a number of reasons why re-mortgaging your home may become beneficial.

Some lenders have already started increasing their SVRs in 2012, thereby increasing monthly mortgage payments; if this trend continues then it could be the case that a cheaper deal could be found elsewhere.

Lenders have started to launch some new competitive rates and deals in order to encourage borrowers to swap to them.

Re-mortgaging to a fixed rate is a way of protecting yourself against future interest rate rises and has the added benefit of making monthly budgeting easier. There is no guarantee that the Bank of England base rate will remain low.

Many borrowers have been able to take advantage of the low SVRs by making mortgage overpayments. The CML reports that one third of all borrowers have overpaid on their mortgage since 2005. This reduces the capital balance and cuts interest due, thereby potentially saving thousands of pounds over the mortgage term.

It is wise though to check the extent of the flexibility on individual mortgage products as some may not allow overpayments, or if they do may charge a penalty, others may allow limited overpayments whilst some may be very flexible and allow unlimited payments.

The Government’s recent Funding for Lending Scheme, which makes cheap funds available to lenders on condition that they do actually lend the money, has ensured that better rates are available to lenders with low equity levels.

This opens up the re-mortgaging option to those who couldn’t switch previously due to insufficient equity.

Now might be the time to start investigating the market again to see what suitable mortgage deals are popping up.

Sharon Yewen is Financial Controller at Checkmyfile. She is an FCA and has a degree in accountancy from the University of Exeter. You can contact Sharon at sharon.yewen@checkmyfile.com

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