Current Homeowners in South Yorkshire could be faced paying £4,000 a year more on their lender’s SVR.
Paying too much in Mortgage Repayments!
New Research by Stephen Kerrigan, Mortgage Advisor in Doncaster found more than a quarter of homeowners are on SVR’s, and many aren’t aware of the pitfalls. However, Stephen explains why it’s vital to Remortgage at the end of your fixed-term, and debunk some of the biggest myths around switching to another deal.
Homeowners overpay by thousands every year
Our research found that 27% of homeowners are on their lender’s SVR, meaning they’re paying on average £4,080 more that they need to every year. For instance, when you take out a mortgage, you will usually sign up for a fixed-rate deal. This means the amount you pay each month will stay the same for a set period of time, in this case two to five-years.
At the end of this period, you will need to Remortgage to switch to another deal, but if you don’t, you will automatically be moved on to your lender’s SVR, which can be significantly more expensive.
Studies found that only half of the respondents knew that remortgaging is usually done with the aim of switching to a cheaper deal and helping to reduce repayments. However, the most worrying is learning that just 18% of those surveyed said they didn’t know they were currently on a fixed-rate deal of their lender’s SVR.
What are the Biggest Mortgage Myths?
Mortgages can be complicated, but the pitfalls of not being on top of your home loan can be significant. However, with that in mind, we’re going to take a look at six of the biggest myths around mortgages and remortgaging to help you get up to speed and ensure homeowners are not overpaying.
1 – I don’t need to know my mortgage rate.
Our research found that many mortgage holders are in the dark about the benefits of switching and are blindly paying their lender’s SVR. However, that’s not all, some homeowners simply don’t know whether they’re on a good rate or not, and Stephen Kerrigan, Mortgage Advisor says this is coasting them thousands every year.
But the truth is really important, you must know your mortgage rate and the date that your fixed term is going to end.
2 – Paying SVR means I will clear my mortgage quickly
Yes, if you want the short answer – however, one in ten homeowners believe moving on to their lender’s SVR would help them clear their mortgage more quickly, but the truth is when you move on to the SVR, you will be paying a lot more every month, and again this extra cash won’t go towards reducing the balance of your mortgage. Instead, you will actually be paying more into interest.
3 – Remortgaging involves being more in debt?
Remortgaging doesn’t add another mortgage to your property, instead, it involves switching your current one to a better deal. When a homeowner Remortgages, they can either do so on a like-for-like basis or borrow more for home improvements and redecorating, etc.
4 – My current bank will offer me the best deal.
Nope, this is one of the biggest mistakes’ homeowners can make. With banks such as, HSBC, Halifax, Barclays, Lloyds, to name a few, the chances of your bank (Nationwide) offering the best deal for you are very small. If you’re considering switching but don’t know where to go, consider taking advice from our very own Stephen Kerrigan, Mortgage Advisor in Doncaster.
We talk a lot about mortgage rates as they’re a great indication of what’s happening in the market, but the initial rate is only part of the overall cost of the mortgage. If you consider this, bank A is offering you a two-year fix at 2% while bank B wants to charge 2.2%. It might seem obvious which one to go for, but you will see that the deal from Bank A comes with an up-front fee of £1,500, while the deal from Bank B is Fee-Free.
This can suddenly become more difficult, with this in mind, try to look at the full picture including rate, fees, and any incentives, before choosing a deal.
6 – Fixing for Longer is better in the long run?
Five-year fixes can be a great option for some switchers, but they’re not right for everyone. Longer-term deals offer great peace of mind, but they often come with high early repayment charges. On a standard five-year fix, you might need to pay as much as 5% of the mortgage balance if you want to repay the loan in the first year (for example if you move home).
If you’re coming to the end of your fixed-rate deal, don’t worry, it’s never too early to shop around, and you can usually agree a new deal up to six months before the end of your current one.
However, before committing, maybe it’s worth seeing what your current lender will offer you, but it’s best to be proactive and get in touch yourself, as your bank may wait until close to the end of your term before contacting you.
For more advice on finding the best mortgage deal, check out our full guides on remortgaging