Mortgage Rates Fall Below 1%: Is it a good time to remortgage?
In response to the coronavirus outbreak in the UK, the Bank of England has dramatically cut their base rate from 0.75% to 0.10% which is considered to be an emergency measure to help support the economy through the financial disruption caused by the spread of the Covid-19 virus.
The base rate is the official interest rate of the Bank of England which is used by other banks and financial institutions as a measure of how much they should be charging borrowers and paying savers in interest. This follows banks such as NatWest or RBS offering mortgage holidays or deferments to customers who encounter financial disruption due to the coronavirus.
This cut puts the base rate at the lowest it has been since the financial crisis in 2008.
A staggering £2.78 billion of interest is being paid by people on the wrong mortgage deal!
This is because according to latest research* 36% of UK homeowners are sitting on their lender Standard Variable Rate (SVR).
When you took out your mortgage there was a good chance that you were given an initial fixed term deal over 2,3 or 5 years. At the end of the initial fixed term you will usually have been switched automatically to the lender’s Standard variable Rate (SVR) of interest. The current average lender SVR is 4.40%.
If this is you there is a good chance your monthly mortgage payments are a lot higher than they need to be.
You are not alone. 4 million UK homeowners are in the same boat.
Why do people Remortgage?
The main reason is to keep monthly costs to a minimum.
1. Has your initial mortgage deal come to an end?
By switching to a better deal with a different mortgage provider, remortgaging could potentially allow you to benefit from lower interest rates and lower monthly mortgage repayments.
2. Are you looking to raise money?
By remortgaging you may be able to releasing equity in your home.
People often remortgage to provide money for:
- Home improvements
- New Kitchen
- New En-suite bathroom
- Consolidate other existing debts.
Remortgaging can be a good low cost way of paying for your new home project.
How does a remortgage work?
Remortgaging essentially means switching from your existing mortgage to a new one. This can be with a new mortgage provider, or the same one you are already using.
People usually consider remortgaging because they think they can get a better deal and reduce their monthly repayments, or because they want to increase their borrowing.
There are usually several costs associated with remortgaging, typically including a valuation fee, administration fee and legal fee. Many (but not all) lenders will offer to pay these costs when you switch your mortgage to them to make remortgaging more attractive.
When to remortgage
Remortgaging is particularly popular at the moment as interest rates are low. Whether it will be a good idea for you to remortgage depends on a number of factors, including your goals and your personal circumstances.
However, in general, if interest rates are lower than you are currently paying on your mortgage, it may be a good time to remortgage. If interest rate are higher than you are currently paying, it may be better to look at other options, such as a second mortgage or a personal loan (if you aim is to borrow more).
Historically for older borrowers (aged 60+) flexible options for homeowners looking to raise capital or simply remortgage to get a better rate or to switch to an interest only basis were limited.
The good news is that this has changed - in the last 12 months a number of lenders have been launching mortgages in retirement products which are designed to help borrowers stay in their homes without being pressurised to downsize.
Independent Mortgage Advice
Remortgaging is particularly popular at the moment as interest rates are low.
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Whether it will be a good idea for you to remortgage depends on a number of factors, including your goals and your personal circumstances.
However, in general, if interest rates are lower than you are currently paying on your mortgage, it may be a good time to remortgage.
If interest rate are higher than you are currently paying, it may be better to look at other options, such as a second mortgage or a personal loan (if you aim is to borrow more).
If you are not sure whether now is the right time to remortgage, it is a good idea to speak to an independent mortgage broker who will be able to offer impartial advice.