First things first. Though changing mortgages looks like you might save a fortune by getting a lower interest rate, this is not always the case. Yes, the rate you are moving to may be significantly cheaper. But there are lots of hidden costs involved and the net result of these costs can be that the change costs you a lot over you would save.
These costs are applied by both your present and your new bank. As for instance, your existing bank will maybe charge you a variety of exit fees, deed release fees and other assorted charges. Similarly, your new bank might want to charge you arrangement fees, probably even legal fees.
These fees can amount to thousands, either out of your pocket or added onto the mortgage. If you add them to the mortgage then you are increasing the borrowing and, therefore, the interest charged. If you pay them out of your pocket then this is cash that might have been earning you interest, or it may be better used to only pay off a few of your mortgage and reduce the payments that way.
So my first tip, and the most important one, is to do the maths of changing mortgages carefully and see if you will in the long run actually be saving money, or whether you would be better off with another solution, for example making a lump a few payment.
Of course, several of these costs may be reduced if you move your mortgage within your present building society. They might be willing to not charge you some of the fees if you only swap to another mortgage product that they have on offer. This can be seen as a way of tempting you to stay.
After you have decided to move your mortgage, you have to decide what type of mortgage you want to move to. A fixed rate guarantees your monthly payments for an agreed period of time. If you take out a fixed rate mortgage at a time when rates might go down there is always the risk that they will drop and you will be paying over the odds.
To get around this a few people opt for capped rate mortgages. Here there is a maximum interest rate that you will be charged, but if rates do drop you benefit from the drops. Of course, with both of these there is a payback and that is that the rates you will be offered won’t be the lowest available. For a lower rate, you may need to look at a tracker style mortgage or a discounted mortgage, which follows the base rate, with a slight voucher.
With these you should get a good monthly interest rate, but with the risk that if rates rise, then so does your monthly payment. So what type of mortgage you select is not a easy choice, but it is based on your financial position. Do you want a low rate, but are able to cope with impending increases in payments if rates shoot up? Or do you need to get the best likely guaranteed deal with a fixed rate?
Finally, depending on your credit score and how your house price has changed since you last mortgaged, your bank may be willing to offer you a lower rate or demanding a higher credit risk rate. But merely a trained person with a full understanding of the mortgage market will know the best deals on offer and be able to talk you through the process.
So, for my final tip, do not go it alone. Ask an independent mortgage broker for some advice.
Written by Keith Lunt of compare UK mortgage rates. If you want to know more about mortgages, call in!
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