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Are you guilty of paying too much for your mortgage?

paying too much for mortgage

If you have a mortgage do you know what your current interest rate is? Many homeowners don’t even realise that they are paying their lender’s standard variable rate (SVR) which could mean they are paying over the odds for their mortgage.

The SVR is the interest rate that borrowers are moved to once their initial rate comes to an end. For example, you may have taken your mortgage out on a 2% deal for 24 months, however unless you have switched to another promotional deal then you’ll automatically be moved to the SVR which could be much higher.

Whilst it may be costing you more money than you realise, there is one good thing about being on an SVR – you aren’t tied in to the rate with your lender, meaning you can ditch your current mortgage at any time.

So why not review your monthly payments and see if you can get a better deal?

What is the current standard variable rate?

The SVR differs from lender to lender so you’ll need to check with your current mortgage provider. According to Which the average SVR is 4.72% however some lenders have set theirs as high as 6%. The SVR is reliant on the Bank of England base rate, so when this rose in August to 0.75% this pushed up many lenders’ rates.

Current remortgage deals – where you switch your mortgage to a cheaper deal – are much lower than most SVRs. Even if you lowered your current interest rate by just 1%, this would typically save you around £900 per year on a £150k mortgage.  And with many 5 year fixes averaging around 3% this could offer significant savings over the term.

What should you look out for when finding a new deal?

Whilst switching could offer a great deal of savings, there are a few key issues you should bear in mind:

Fees

When switching your mortgage, you should always take into consideration the overall cost of the deal, fees included. Whilst the low interest rate may look tempting, this could come with a hefty fee. If moving to a new provider you may also incur new valuation and conveyancing fees so make sure you do your calculations with all these added in.

Exit charges

Whilst there is no fee to move away from an SVR, there may be if you are currently in a fixed-term deal. Usually, the earlier you move, the more you will pay so try not to switch mortgages in the first year or so of your deal otherwise the exit fees are likely to negate any savings you make by remortgaging.

Fixed or variable rate deals?

If you want the advantage of knowing how much your repayments will be for the life of your mortgage term, then stick with a fixed-rate deal. These are usually a little higher than a variable rate mortgage, but for some the extra money each month is worth the peace of mind. Variable rates are decided by the lender, and are usually affected by changes to the Bank of England base rate. Whilst there has only just been an increase in the base rate, that doesn’t mean there isn’t more to come so try to think ahead, and plan this into your finances if you go for this type of mortgage.

Review your mortgage with a mortgage adviser today

The above post is intended to be informative but does not constitute advice – financial, legal or otherwise. Any opinions given are the author’s own and do not necessarily reflect the views of SO Media.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

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