Is Your Mortgage About To Give You A Shock?
Hundreds of homeowners could be about to find their monthly payments hiked by hundreds of pounds - minimise the pain by being prepared.
What were you up to, this time two years ago? Well apart from being two years younger, if you'd just remortgaged to a fixed rate deal you were probably feeling smug about the size of those monthly payments. After all, the base rate was a mere 4.5% back then, and you could easily snap up a fixed rate mortgage deal at a rate less than that with a little effort.
Things are slightly different today -- the base rate is 1.25% higher at 5.75% and the Bank of England has hinted it could hit the 6% mark by the end of the year. What's more, the current credit crunch crisis is causing uncertainty, with Abbey becoming the first High Street bank to raise the interest rates on its tracker mortgages for new customers despite the fact the base rate was frozen this month. Other lenders are likely to follow suit.
Of course, if you're still paying the rate you remortgaged to two years ago, you probably feel quite shielded from all of this as your payments have remained relatively low. But for how much longer? A raft of fixed rate deals are about to expire in the next few months, and if yours is one of them you could soon be facing a shocking hike in your monthly payments.
For example, the best buy, 2-year fixed rate deal available two years ago was from Portman BS at 4.2%APR. If you had taken out a £150k, 25 year repayment mortgage at this time your monthly payments would have been about £817. After two years your outstanding balance would now be £137, 201.
Standard Variable Rate
However, once this deal had expired you'd be put onto Portman's standard variable rate (SVR) of 7.74%APR. This means that your monthly payments would increase to a whopping £1079 -- that's a rise of £262 per month! Blimey. (Sharp readers will have realised that Portman has recently merged with Nationwide BS and should now have reverted to Nationwide's base mortgage rate (currently set at 7.24%) but even at this slightly lower rate you'd still be paying £1,022 each month (an extra £205).
So what can you do? Well the answer is simple, remortgage to a cheaper deal. As a rule of thumb we reckon you should start looking into finding one around three months before your rate will expire - this way you should have transferred your loan over in good time (and avoided having to pay your lender's crippling SVR).
There are many ways to find a better mortgage deal, and your first port of call is obviously to speak to your lender to find out what it can offer. The method I tend to prefer when I need to remortgage is to find a reputable, whole of market and, importantly fee free broker to search for deals for me. Not only is it far quicker than me trawling the internet etc, brokers also tend to have access to some deals that you or I would not be privy to.
I checked with our very own Motley Fool Mortgage service and found that the current, best buy, 2-year fixed rate deal available is from Britannia BS, at 5.49%APR (arrangement fee of £999). If you were to remortgage to the Britannia deal from the example given above, your payments would become £876 per month, which is at least £146 less than if you had to pay the standard variable (or base mortgage) rates mentioned.
Chances are if you need to remortgage in the next few months your new monthly payments will be more than what you're used to -- with interest rates having been raised five times in the last two years there is typically little we can do to avoid this. But at least by remortgaging we can take advantage of the best deal available to us, and avoid having to pay our lenders' rip off standard variable rates.
So if your mortgage deal is coming to an end, don't delay, start looking into your options now. And don't forget to check out our award winning mortgage site, right here at the Fool. Our free mortgage broker service can quickly search for the best deal for you -- and I should know, I've used it myself!