Remortgage to cut your monthly payments
Mortgage companies often offer introductory ‘teaser’ rates to new customers, either at a lower variable-rate, or a fixed rate for an introductory period. Once this is up, your monthly payments can rocket as your deal will likely revert to your lender’s standard variable rate (SVR) – which is usually much higher. It can pay to shop around for cheaper deals from other lenders.
Of course, moving to another mortgage provider will involve going through its application process and affordability criteria. You may incur fees in the process so don’t make any rash decisions. Instead, do your homework and make sure a new deal warrants your time and efforts.
To help you with your research, we probe the market each week to find the most competitive deals for you, whether you’re looking for long- or short-term fixes, variable-rates, or interest-only deals.
Our mortgage hunter is looking to remortgage on his £200,000 property, and will be looking to borrow £100,000 over 15 years – so they’re looking for a 50% loan-to-value (LTV) deal. Our buyer has decided to pay any valuation or arrangement fees up front to avoid being charged extra interest.
Leeds Building Society has the best fixed-rate deal for remortgagors, thanks to a stonking £1,000 cashback deal. The rate is 2.09%, fixed until December 2018, implying monthly repayments of £648 for our buyer. After factoring in the £199 initial fee and cashback this mortgage will cost £14,751 over the first two years. The 5.44% standard variable rate is relatively high, and means repayments will rise to £791, assuming the rate doesn’t change and our buyer doesn’t remortgage.
Alternatively, Santander’s 1.74% two-year fix has repayments of £632 but a less generous cashback deal. There are no fees and £250 cashback, so the cost over two years is £14,918. The SVR is 4.49%, which will push repayments to £746 if our buyer doesn’t remortgage and the rate doesn’t change.
If you’re willing to pay an up-front fee, it’s possible to get a sub-1% fixed rate deal from HSBC, which charges 0.99% until December 2018 with initial fees of £1,672. Monthly repayments are £598 and the two-year cost is £16,072. After two years, the 3.69% SVR takes effect and repayments will rise to £707.
It doesn’t look like interest rates will rise substantially any time soon, so it’s relatively cheap to fix your mortgage repayments for the longer term. The best deals are available for well under 3%. However, monthly repayments are much higher than shorter fixed-rate terms, so it only makes sense if you expect rates to rise in the next few years.
For our buyer, HSBC has the best ten-year deal. It charges 2.49% until December 2026, with no fee. That’ll cost £666 per month, or £15,984 over the first two years. The SVR is 3.69%, which will push repayments up to £686 after the fixed rate period.
The Coventry also has a fee-free ten-year fix at 2.69%. That’ll cost £676 per month, or £16,224 over two years. The SVR is also 4.24%, which will increase monthly repayments to £702 after ten years, assuming no changes.
If you’re happy locking in your rate for less time you can get a cheaper deal. First Direct has the most attractive five-year term. The rate is 2.08%, fixed until September 2021 and there’s a £35 fee. That’ll cost £647 a month and £15,563 over two years. Repayments will rise to £699 when the 3.69% SVR kicks in, again, assuming it doesn't change.
The Woolwich, Barclays’ mortgage arm, will lend at 1.49% over the Bank of England base rate for two years, currently 1.74%. That’ll cost £632 each month. There are no fees and £250 cashback, so our buyer will pay £14,918 over two years. After that, the 3.74% SVR kicks in, though it could change. If it doesn’t, repayments will rise to £714 each month.
While interest-only offers can be tempting, you’ll need a solid plan to pay off the capital at the end of the loan. You should also factor into your decision-making the interest you owe won’t diminish as you won’t be paying off your debt as you would with a capital repayment mortgage.
Not all providers will lend on an interest only basis, so your best bet could is likely to get a mortgage via a broker. Indicative rates can be found in our mortgage comparison tool.
|Free expert mortgage advice service|
|- L&C will compare, advise on and arrange the best mortgage for you from 1000's of deals|
|- You'll always get advice from a qualified mortgage expert|
|- Open 7 days a week including until 8pm on weekdays.|
|Call free on 0800 073 1936|
|See mortgage best buys >>|
A catch-all phrase that can range from assessing the price of a property or vehicle before offering it for sale or the net worth of assets in an investment portfolio to the prices of shares on a stock exchange.
Every mortgage lender has a standard variable rate of interest, or SVR, on which it bases all its mortgage deals, including fixed and discounted rate and tracker mortgages. When special deals come to an end, the terms of the deal usually state that the borrower has to pay the lender’s SVR for a period of time or pay redemption penalties. The lender’s SVR is, in turn, based on the Bank of England’s base lending rate decided by the Bank’s Monetary Policy Committee (MPC). Every time the MPC raises its rate, mortgage lenders generally increase their SVR by the same amount but when the MPC lowers its rate, lenders are often slow to pass this on or don’t pass on the full cut to borrowers.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.
A “traditional” mortgage, where the monthly repayments entail of repaying the capital amount borrowed as well as the accrued interest, so that during the loan period the capital debt is gradually paid off so by the end of the term the mortgage has been fully repaid. One advantage of a repayment mortgage is that it removes the risk of having a parallel investment (such as an endowment policy or pension), the performance of which is dependent on the stockmarket, such as with an interest-only mortgage.