Are you coming to the end of a fixed rate mortgage term? If so, it's time to consider your options, and remortgaging to a new low-cost fixed rate deal could be just the thing – which could explain why so many people are taking the plunge.
Lower your rate – and repayments
New research from LMS shows that more than half of people remortgaging in May (56%) took advantage of the competitive deals available to lower their mortgage rate, and the cost benefits speak for themselves. A third (32%) were able to reduce their monthly outgoings by up to £500 in the process, with this kind of cash boost having a welcome impact on household finances.
When you consider how low rates are now compared with two years ago, you'll soon get an idea of how easy it can be to secure such great savings. Our own figures show that the average two-year fixed rate in June 2014 stood at 3.47%, while the average rate today is just 2.58% – giving you an instant rate cut of 0.89%. Compare this with reverting to the current average standard variable rate (SVR) of 4.81%, and remortgaging is a no-brainer!
"Increased competition between lenders, record low rates and rising housing equity have come together to provide homeowners with a setting that is ripe for remortgaging," said Andy Knee, chief executive of LMS. "It is clear that many savvy borrowers are taking advantage of the current climate and we expect activity to maintain its momentum."
Need a cash injection?
Alternatively, it seems that many remortgagors are choosing to increase the size of their loan as well as lower their rate, which may not lead to such great cost savings but could provide a welcome – and cost-effective – cash injection.
LMS's figures show that 26% of remortgagors increased the size of their loan in May, up from 24% in April, with the number of those who increased their loan by more than £10,000 seeing a similar increase from 16% to 19%. It could be put to good use, too, with one in five (19%) using the cash released from remortgaging to spend on home improvements, while 7% paid off other debts and 3% used the money to help their children get on the property ladder.
However, many people could also be remortgaging to preserve such low rates for as long as possible, fuelled by concerns of a potential rate rise and economic uncertainty. For example, 14% of respondents believed that interest rates will rise, up from 12% in April, with this undoubtedly weighing heavily on people's minds. This could explain the growing popularity of long-term mortgage fixes, with three and five-year deals becoming increasingly prevalent.
"Homeowners are looking for stability in their monthly costs and are prioritising long-term security over initial savings," said Andy. "We're also seeing evidence in the market that many remortgagors are opting for a fixed rate to guarantee a set rate for a set period.
"Locking in is very competitive right now with huge savings to be made in the long-run, even if it means in the short term they pay a little more. With an uncertain economic climate, knowing what your mortgage payment will be for five years is a very seductive offering for many remortgagors."
Want to take advantage of the market? Check out the top remortgage deals to get started
Compare fixed rate mortgages and see if you can fix for longer
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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