Should You Lock Into A Sub-1 Per Cent Deal | moneyfacts.co.uk

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Derin Clark

Derin Clark

Online Reporter
Published: 23/06/2021

With well-known high street mortgage lenders such as HSBC, TSB and Platform, all offering remortgage rates below 1% many homeowners will be tempted by these deals. Although for some, locking into a two year mortgage with a sub-1% rate will be a good deal, when looking at the mortgage overall these sub-1% deals may not be the best option on the market.

What can impact the overall cost of the mortgage?

Attention grabbing headline rates are used by mortgage lenders to attract borrowers, but there are a number of factors beyond the interest rate that can impact the cost of the mortgage overall. Product fees, for example, can significantly impact the cost of the mortgage. These fees are usually added to the mortgage and are factored into the repayment costs, which means that a mortgage deal with a low interest rate but high product fees could have higher repayments than one with a slightly higher rate but no product fees. In fact, our research has found that year-on-year the cost of product fees has increased, rising from £1,018 in June 2020 to £1,075 this month. An easy way to see the impact on the product fee on the cost of the mortgage is to compare the APRC (Actual Percentage Rate of Charge) which factors in these fees, along with the standard variable rate (SVR), to provide the cost of the mortgage over its full term.

Another factor that can have an impact on the cost of the mortgage is the incentives that comes with the deal. Some remortgage deals come with the incentive of no legal costs, or subsidised legal costs, while other may also offer cashback on completion or other financial incentives. Although legal costs for remortgaging are usually lower than when purchasing a property, these costs can still add hundreds of pounds to the cost of the mortgage and can be expensive for homeowners paying them every two to five years when they remortgage.

Mortgage borrowers may also want to consider the flexible features offered in the deal, especially if they are planning to make overpayments, which not all deals allow. Along with being able to make overpayments, some deals will also allow borrowers to pay off a lump sum, make underpayments and take payment holidays.

Consider the SVR

Ideally, when coming to the end of their fixed term mortgage deal, homeowners should look to remortgage into another deal. There are times, for example if planning to move home in the near future, when locking into a new deal may not be sensible, in which case the homeowner will automatically be switched to the lender’s SVR. As such, when considering mortgage deals, homeowners may want to also take into account the lender’s SVR.

Cost of exiting your current mortgage deal

Homeowners currently locked into a fixed rate mortgage deal who are tempted by the low rates currently on offer need to consider the costs of exiting their current deal if wanting to remortgage early. Usually, the costs of exiting fixed rate deals before the term has ended will depend on how much of the term is left, but it can significantly increase the cost of remortgaging and could wipe out any savings made locking into a lower rate.

Where to go to for mortgage advice

For those considering remortgaging into one of the sub-1% deals currently on offer it may be worthwhile speaking to a mortgage broker first. A mortgage broker will be able to look at the borrower’s individual circumstances and will be able to suggest the best deal for them when considering all aspects of the deal and the borrower’s needs. Mortgage borrowers can get fee-free advice with our preferred brokers Mortgage Advice Bureau – more information about this offer can be found here.

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