With remortgage rates from as low as 0.94% in the charts, homeowners could save thousands of pounds by locking into a new mortgage deal. Here we look the best ways homeowners can save money remortgaging in 2021.
Homeowners that are coming to the end of their mortgage deal could reduce their monthly mortgage repayments locking into a new remortgage deal as during the last 12 months mortgage rates have fallen to record lows. Now there are several sub-1% deals in the two year fixed remortgage chart, meanwhile in the five year chart the lowest rate is just 1.14%.
To give an idea of how much could be saved by locking into a new remortgage deal, five years ago the average rate on a five year fixed rate deal at a 60% loan-to-value (LTV) in June was 2.61%, whereas the average rate on a five year fixed rate deal at a 60% LTV this month was 1.81%. These are, however, the average rates across all mortgage deals, not just remortgage rates. As such, a homeowner coming to the end of a five year fixed deal will find that there are significantly lower than average rates in the five year remortgage chart.
Similarly, a mortgage borrower who locked into a two year fixed deal two years ago would have had an average mortgage rate at a 60% LTV in June of 2.03%, whereas this month the average two year fixed deal at a 60% LTV was 1.61%. Again, the lowest two year fixed rate deal in the chart is significantly lower than the average mortgage rate, standing at just 0.94%.
The fall in mortgage rates could result in homeowners reducing their repayments by hundreds of pounds each month simply by remortgaging into a new, lower rate.
Meanwhile, homeowners who have already come to the end of their fixed rate deal and who are now on their lender’s standard variable rate (SVR) could see even more reductions in their mortgage repayments by locking into a new deal. For example, the average SVR is currently 4.41%, which is significantly higher than most remortgage rates in our two and five year fixed remortgage charts.
Although low mortgage rates can attract homeowners looking to remortgage, it is important to remember that the lowest rate may not be the best deal. Instead, it is important to look at all aspects of the deal to determine the true cost of the mortgage.
For example, both HSBC and Nationwide Building Society both have two year fixed mortgage deals offering 0.99%, however the deal from HSBC charges a product fee of £999, whereas the deal from Nationwide Building Society charges a product fee of £1,499. A borrower with a property worth £500,000 and who has an outstanding mortgage of £300,000 and looking to remortgage on a 20-year term, will find that over the two years they would repay £500 less on the HSBC deal than the Nationwide Building Society deal - £34,399.16 compared to £34,899.16. As well as this, although both deals come with the incentive of free valuations, the HSBC deal also has the incentive of no legal fees whereas the Nationwide Building Society deal has the incentive of either £500 cashback on completion or no legal fees.
The majority of the most competitive remortgage deals come with the incentive of free valuations and no legal fees, but those looking to remortgage should be aware that if the deal does not come with these incentives it could result in homeowners having to pay hundreds of pounds to cover these costs.
Clearly, the fall in remortgage rates over the last few years means that homeowners coming to the end of their five and two year fixed deals, as well as those already on their lender’s SVR, will likely reduce their mortgage repayments locking into a new deal, but what about homeowners still locked into their fixed rate deal?
Already, we’ve highlighted that the average mortgage rates are now lower than five and two years ago, with even lower rates available in the remortgage charts. For homeowners this may make exiting their current deal and locking into a new rate tempting, especially for borrowers worried that rates may start to rise. Mortgage borrowers thinking about leaving their current deal early should do the maths carefully before making a decision. Firstly, they should use our mortgage repayment calculator to compare their repayments on their current rate with the new rate. If they feel that the reduction in their repayments is significant, they should then calculate the Early Repayment Charge (ERC), and compare the cost of exiting the deal early against the potential reduction in monthly repayments. Homeowners will also need to factor in the other costs of remortgaging, including the product fee, valuations and legal costs into their calculations.
A good way for homeowners to ensure that they are able to reduce their monthly repayments by locking into a new remortgage deal is by using a mortgage broker. Mortgage brokers usually have access to all deals available in the market, including those not accessible to consumers directly. This allows them to highlight the best possible deal for the borrower, including when taking into consideration product fees and incentives. As well as this, a mortgage broker will also be able to advise homeowners currently in a fixed rate deal whether they will save money remortgaging or if they should remain within their current deal. Often a mortgage broker will charge a fee for their service, however readers of Moneyfacts.co.uk who use Mortgage Advice Bureau will be able to get advice for free if they use our exclusive telephone number, saving them hundreds of pounds – click here to speak to a mortgage broker at Mortgage Advice Bureau or to find out more about this offer.
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