13 August 2021
As mortgage rates hit record lows, could you save money by switching?
It’s the age-old question for borrowers who have taken out a fixed-rate mortgage, only to find a cheaper alternative comes along – could I save money by switching? Given the recent spate of low fixed-rate mortgage deals being launched at sub-1 per cent, with Halifax launching the lowest two-year fixed-rate ever at 0.83 per cent this week, it is not surprising that some borrowers locked into existing long-term deals may be tempted to switch. House-price inflation, home improvements and lump sum reductions may make the idea even more palatable.
If you switch to a cheaper fix you will reduce your monthly mortgage payments, however, there are a number of other factors to consider, particularly early repayment charges (ERCs). Most fixed-rate mortgages have an ERC if you want to exit early, ranging from a fixed rate for the duration of the initial fixed period (maybe 2,3 or 5 per cent) or tiered during that period i.e., 5/4/3/2/1 per cent. This charge may be levied on the original loan amount or the outstanding balance, so it could be significant and run into thousands of pounds. It is important that you examine the mortgage offer documents and any terms and conditions supplied by your mortgage provider.
There are other considerations too. Lenders have had a dynamic approach to risk and policy since the start of the pandemic, with changes occurring frequently over the past 12 to 18 months. This means that a mortgage you qualified for three or four years ago may not be the case now, if changes to your employment, income structure, or credit profile have impacted your credit attractiveness.
As with any mortgage you take out, you also need to factor in all fees. Most lenders offering remortgage products will often reduce, waive or reimburse any legal and/or valuation fees. However, there may be other costs that will have to be taken into consideration, such as product fees.
With so many factors to consider, it is worth seeking advice from a mortgage broker such as SPF, to ensure you understand the positives and negatives of a premature move, helping you calculate the cost worthiness and likelihood of successfully doing so.