(Plus my strategy to get the best of both worlds when you remortgage!)
Are you thinking about an Early Remortgage… Some of my mortgage clients are making the bold move to pay the penalty for coming away from their current mortgage and remortgaging early, to prevent them from suffering the effects of further interest rate rises in the future.
It’s a not a move without risks – it is not about saving in the short term, for them it’s about protecting themselves from future rate increases when their mortgage rate comes to an end next year. So many of us have been asking and trying to predict if mortgage interest rates will come down soon but the truth is no one knows exactly – even mortgage brokers. But this strategy is certainly one way to protect yourself if rates do go up again.
So, let’s unpick why my clients are taking this bold step with their mortgage…
Remortgaging is the process of moving from one lender to the other. I’m a big advocate of remortgaging rather than simply doing a product transfer because normally you will get a better rate and you can make a variety of other changes. (Find out more about remortgaging here.) You can start this process of remortgaging 6 months ahead. It’s worth noting at this point that the mortgage offer lasts for 6 months from the date of the mortgage offer through to the date of completion. With some mortgage applications taking weeks to formally offer, you could even start the process a couple of weeks before the 6 month mark with your mortgage broker, to get you started a little earlier. This could be the difference between a few hundred pounds of monthly mortgage payments, if the last few months are anything to go by!
A product transfer on the other hand, is the process of staying with the same mortgage lender but choosing a new rate, which at the moment will almost certainly be higher. Traditionally, lenders will allow you to begin doing this 3 months before your mortgage rate comes to an end. However, some lenders have started to allow people to start this 6 months ahead too. A clear sign of the times – that mortgage interest rates have increased dramatically and people need more options when their current rate comes to an end.
More than 6 months to go?
But what if you have more than 6 months left on your mortgage? Should you come away from your fixed rate now before interest rates go up even further, as they may well do? That could happen, no one knows for certain (including mortgage brokers). Mortgage rates aren’t purely linked to the bank of England, they follow different rates, which is why we have seen such dramatic increases lately.
If you decide together with your mortgage broker to come away from your current mortgage early, you will incur a penalty, known as an early repayment charge. This is a percentage calculated on the amount you owe, which decreases as you repay. So, you need to ask yourself if is it worth paying the penalty and then going on to a higher rate than what you’re currently on OR do you just wait it out and hope that rates come down by the time your current mortgage comes to an end?
Only you can decide. It depends on your personal attitude towards risk and what you’re comfortable with. Play it safe or ride it out? Do you feel you will be paying back the maximum you can realistically afford each month, or could you afford to risk more increases?
How to get the best of both worlds
One option which I have been advising my clients to do, is to get started on a mortgage application, even if you decide later down the line not to go ahead with it. You can then get your application done and offered and it can sit and wait until you want to make that decision – or not. This is like having the best of both worlds in my opinion; you have a mortgage waiting for you as your ‘safety net’ if rates go up – OR if rates go down, you can do another mortgage application at a new lower rate (providing your income and outgoings haven’t changed too significantly of course).
Decisions, decisions – that only you can make but do speak to an expert mortgage broker first. You can chat to us about your individual situation with no obligation to help make your next mortgage an easier one.