With the mortgage interest rates currently dropping as they have done over recent months due to the credit crunch, there’s likely to be a lower mortgage rate available than the one you are currently on. Should you be rushing out to a local mortgage broker to see if there are better mortgage rates on the market for you?
Maybe, maybe not. It’s not always that simple in the world of financesand that’s the reason that whether you are looking at mortgages online or by visiting banks, you should always seek free, independent advice from a mortgage advisor. Don’t just swap mortgages because your new lender tells you they have a better mortgagedeal. Don’t just go out and find a lower rate on the internet comparison tables and apply for it, thinking all will be well once you have completed your new loan.
Why might it not be a good idea in all cases? Well, one of the first questions an independent mortgage broker will ask you at a first interview may be about any tie-ins you have with your current mortgage product. If you move your mortgage now, will you have to pay any financial penalties to your current lender? These could be quite significant. If the penalty is to pay a few months’ interest just to get you out of an existing deal, then it might require you to reduce your monthly mortgage repayments a lot in order to recover the extra expense, and this might not be possible in the long term.
Assuming that your current mortgage product has ended its comfy initial introductory period and you are now on the bank’s standard variable rate, without any tie-ins, then there are still plenty of warning flags that might make it harder or financially uncomfortable for you to remortgage. These, along with any other relevant warnings, should be discussed and worked through with along with other help and advice from your mortgage broker.
For example, you will need to consider do you still count as the same level of credit risk as when you took out the mortgage to begin with, or have you missed any repayments? Has the value of your property fallen, maybe meaning that your borrowing will be an even larger proportion of the house price than when you took out your current product? If your mortgage value is now more than 75% of the value of your house, a future mortgage could be very expensive. These might mean that banks won’t be as happy to offer you a mortgage, or at least not as good an offer. You could be shoved onto a more expensive product.
And even placing these aside, there are arrangement fees, completion fees on your existing mortgage, other legal fees for setting up a mortgage and maybe survey fees on your own property. All of these charges have to be paid for. Pay for them up front as you arrange a new mortgage, and then you have to work out what the long term impact is effectively and decide if the saving in the offer period outweighs the costs involved . Add them to your mortgage and you end up paying more each month.
Either way, reducing your monthly mortgagerepayments isn’t just about finding better mortgage rates. You have to take into account all costs and impacts and total up the fees and charges over the next few years if moving mortgage will save you any cash. Ask an independent mortgage broker to give you a written model, comparing your current position to your proposed position.
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