TIP OF THE MONTH - IS NOW THE TIME TO RE-MORTGAGE?
Interest rates have been low for a long time now. In fact the Bank of England’s base rate has been at historically low levels since March 2009.
Low interest rates are great for borrowers – although most do not have ‘trackers’ that directly follow the Bank of England’s base rate, so they are likely to be paying much more than 0.5% at the moment. When interest rates are so low, repayments are less than might originally have been budgeted for and many people will therefore be taking the opportunity to ‘over-pay’ each month, in order to reduce the outstanding balance faster than planned, as this can save a lot of interest later on.
Is this the only consideration?
Good as it is to cut down your mortgage as quickly as possible, there are other issues to consider such as what is likely to happen to interest rates over the next few years. Base rate is likely to rise during the course of 2011, largely because inflation refuses to calm down and this is one of the few weapons available to the Monetary Policy Committee (MPC). One member, Dr Andrew Sentance, has been arguing in favour of this strategy for months. Of course, lenders are not tied to what the Bank of England does (except for base rate tracker mortgages) but as a general rule if base rate rises, home loan rates tend to follow suit. So mortgage rates are likely to rise during the year.
Fixed rates
It is, however, possible to arrange a ‘fixed rate’ mortgage although rates are generally only fixed for a limited period – seldom much longer than 60 months, or so – and are often initially higher than for standard variable rate mortgages or trackers. This is because lenders also expect rates to rise and are already factoring-in an allowance for this. Lenders’ arrangement fees can also be higher than for some other loans and this needs to be taken into account when considering whether the costs involved (and a possibly higher interest rate than you are currently paying) justify moving from your present mortgage.
You may also be tied-in to a higher standard variable rate than would apply under your current deal, at the end of the fixed period, and may then have to accept additional costs in order to make alternative arrangements.
This is not a simple matter and consulting an independent mortgage or financial adviser before making any decision, is essential. As you will know, that’s what Champion Financial Advisors does!
Your home may be repossessed if you do not keep up the repayments on your mortgage. A fee may apply for mortgage advice and you must ask for details before making any decision relating to a new mortgage as the actual amount will depend on your personal circumstances, but in most cases is unlikely to exceed 0.5% of the loan value (on a typical £100,000 mortgage, this would be £500). Champion Financial Advisors do not charge a fee where the lender is paying commission.
