Its common practice to periodically remortgage, and that is an opportunity to reduce the amount of interest you pay. When you approach your mortgage advisor, based on the current market conditions they will find the most suitable deal for you for the remortgage.
Re-mortgage to a cheaper rate
At the point of remortgage, while there is always a possibility of going for a lower fixed-rate, do note the fact that it might not always be the scenario as it varies with the dynamic market conditions and if you do not remortgage, you would automatically fall under the standard variable rate which may be cheaper or expensive than the usual deals.
Sometimes for BTL mortgages and residential mortgages, the variable rate could be cheaper than the fixed-rate, but the caveat is there is no Crystal ball, or rather no accurate predictions on the trajectory of the variable rate, which may keep you anxious about your monthly interest payment. Overall, you would be saving your interest payment depending on the deal or rate you have agreed upon.
Also, the optimism around the 2 year remortgage is that you do not have to wait for more than 2 years to remortgage to a better deal, because waiting for more than a minimum of 2 years in the deal could cause you the opportunity cost of paying more interest than lesser when better deals are out there around the same time. However, you may have to pay a product fee when you do a remortgage or no fee if you get lucky.
Reducing mortgage term
Note the fact that there is no 100% guarantee that at the point of remortgage, you will always get a better fixed deal or sometimes a better variable or tracker rate. Another viable option to counter this is by reducing your mortgage term at the point of remortgage.
Let’s say you’re currently on a fixed-rate mortgage deal for 2 years over a 25-year mortgage term, and you’re close to the end of that deal. Usually, people would go ahead and remortgage for another two, three or five years on fixed-rate or a better deal depending on the market conditions but let’s assume you remortgage every 2 years.
You could consider reducing your mortgage term from 23 years to let’s say 21, every two years of your deal end and subsequently reduce your mortgage term by 2 years at every remortgage point as your income gets better. Ultimately your mortgage term would reduce to 12.5 years and you would still be young by the time you finish paying off your mortgage. This also means you will pay more capital than interest each month and pay off your mortgage 12.5 years early. However, make sure you are in a secure financial position and the no. of years you want the mortgage term to be reduced by is at your own discretion while the monthly payments would be relatively higher in proportion to the mortgage term reduced.
Overpay every month
A further strategy to reduce interest is to overpay. Most lenders allow customers to overpay by 10%. This means you will more quickly reduce the amount of capital owed and so have less interest to pay in the long run. This is once again more suitable if you’re in a good financial position or you are hoping for your financial position to improve. However, be aware of the fact that if you overpay more than the permitted percentage, you may have to pay an ERC (early repayment charge) on your remaining mortgage balance especially if you’re on a fixed deal.
Pay Fees Upfront
When going ahead for a mortgage or a remortgage, there is usually a product fee which you may have to incur. The product fee is a fee for securing a rate or deal which you are interested in. The product fee differs from deal to deal but usually you might find the fees to be at £995, £999, £1499 or sometimes more than £2000. Most buyers are comfortable to add up the fees to the overall loan amount which is an easy way through to the deal but the caveat is you will have to pay more interest as the fee would now be a part of the loan. It is best if you could pay the fee up front to avoid any additional interest on your mortgage.
Avoid broker fees
Sometimes when you approach a fintech mortgage broker, you maybe charged a broker fee for the mortgage application done on your behalf. Generally, you will be charged a fee of between £295 – £495 and if you do not pay it upfront, it maybe added to your loan. As a result, you may have to pay a higher interest overall. Therefore, it is better to pay the broker fee upfront or approach a mortgage broker who would charge you no fee at all.
Avoid capital raising
Towards the end of your current deal period, you may want to raise additional capital as you may have undertaken renovations or property extensions. As a result of this, you may think of raising additional capital on top of the outstanding loan amount. It may sound like a fine move, but do note that when you capital raise, you will have incur more interest on the overall loan amount as a result of the additional capital raised and this may even extend your mortgage term resisting your ability to pay off your mortgage early.
Overall, the fact that it is wise to pay off your mortgage early and thereby paying lower interest as well but before you do, take a step of thought and approach an Independent financial advisor or money advisor. However, if you find yourself amidst other expensive debts around you, it is always better to settle them off as your mortgage payments maybe cheaper.
As a mortgage is secured against your home or property, it could be repossessed if you do not keep up the mortgage repayments.
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