Martin Lewis of MoneySavingExpert: Are you overpaying on your mortgage?
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Martin Lewis of MoneySavingExpert on paying the right amount for your mortgage.
Mortgages are the pelicans of the financial world – seriously big bills. So if you languish on a bad deal it’s very likely to be your biggest waste of cash too.
Step 1: Find the facts about your current mortgage.
Dig out the details of your existing deal, and see if it’s worth remortgaging (ie, switching to save). You’ll need to know…
a) What’s the rate?
b) What type is it?
c) When is the intro deal over?
d) How long is the full mortgage term? When must it be fully repaid?
e) Will I be penalised? Are there any early repayment/exit penalties?
Critically, work out your current loan to value (LTV) - the proportion of your property’s CURRENT value you’re borrowing.
Step 2: Benchmark the cheapest rates.
For an easy benchmark of what’s available in your circumstances, start with a comparison site that includes all deals, including ‘direct only’, those that aren’t offered by broker.
Step 3: Calculate how much cheaper a new deal is.
A good way to compare mortgages is to divide the fee across the discount or fixed period. So a £1,200 fee on a two-year (ie, 24-month) deal is £50 a month – then add that to the monthly repayment.
Step 4: Think about whether you’ll be accepted
This can be tricky - there are two factors...
- Are you creditworthy? Your credit history is a huge part of whether you’ll be accepted for any type of credit, including a mortgage. Be careful before applying for a mortgage to protect it, don’t make too many applications for other credit, don’t withdraw cash on credit cards and never miss or be late with debt repayments.
- Will you pass affordability checks? Lenders won’t just check if you can afford the monthly repayments at the current rate, but they’ll also stress test affordability if rates were 6% or 7%.
And crucially this doesn’t only apply for new mortgages, it’s also for remortgages (which is ridiculous and on a side note I’ve been campaigning against this, and last week the regulator, the FCA agreed to consult on changing its lending rules to help free 140,000 ‘mortgage prisoners’).
So it’s really important you reel in your spending months before applying, as lenders will want evidence of income, big bills, expenses and even eating out.
Step 5: Consider using a mortgage broker.
Brokers can match you to the right deal, as they have access to info that consumers don’t, such as credit-scoring and affordability criteria. They also have access to different deals than are offered directly to borrowers.
But do ask if the broker will check all deals available to them and not just a panel of lenders.
Also, check how much using a broker will cost and ensure you use a qualified one.
Won’t Brexit impact interest rates - shouldn’t I wait?
The one certainty about Brexit is the uncertainty, both of the outcome and then the impact of each outcome. For example, if the Bank of England’s right that a no-deal means an economic downturn (and that’s a big if), on one hand you’d expect an interest rate cut to stimulate spending, but as the pound would also likely drop, pushing up inflation, that predicates a rise. So forget predictions - no one knows.
What we do know is new mortgage rates are still cheap, and there’s more room for them to rise than drop. So if certainty is what matters to you, get a cheap fix now, and the more you want certainty, the longer you should consider fixing.
Generally you pay a little more to fix, but not much. I’m not saying that with hindsight it’ll be the cheapest route, just that you’re far less subject to huge economic winds as well as price and budgeting certainty.
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