Remortgage – now, later or never?
If you`re watching the base rate fall and wondering whether you should remortgage, read on.
At a time like this, anyone with a fixed-rate mortgage could well be wishing they`d chosen a tracker instead. Someone who arranged a tracker mortgage in September 2008 could have seen their mortgage rate fall a full 4% over the next 5 months!
Then again, very few people could have predicted that. With the full effects of the world`s economic problems just starting to show themselves, many cautious home-buyers took the safe, steady approach to mortgaging, swapping the hope of decreasing mortgage payments for the security of a fixed rate.
Remortgage 2009
Today, with the base rate at 1%, it`s tempting to remortgage to take advantage of lower interest rates. But is that wise?
Remortgage - the ‘charges & fees` factor
First of all, there`s the matter of the early repayment charge which comes with most fixed-rate mortgages. As the name says, this is a charge which must be paid if the mortgage is repaid early (usually because the borrower decides to sell or remortgage).
This charge could be a substantial sum. For example, the bank could charge 3% of the total amount being repaid - so in the case of a £100,000 mortgage, this would be £3,000! To make a remortgage worthwhile, the remortgage would have to be much better value than the original deal - especially once any arrangement fee (which the bank may charge for the remortgage) has been taken into account.
Remortgage - the ‘future` factor
Today, the economy`s in ‘uncharted waters`, as various experts have put it. In other words, no-one knows what may happen over the next few years. What we can do, though, is look to the kind of worst-case scenario we could see, based on what`s happened in the past. For example:
- On 2nd June 1988, the Bank of England`s base rate stood at 7.38%.
- On 6th October 1989, it reached 14.88%
An increase of 7.5% in just 16 months.
Someone who arranged a five-year fixed-rate mortgage (at, say, 5.5%) in September 2008 knows they`ll be paying 5.5% all the way up to August 2013.
Remortgage to a tracker rate today, and they could be paying 3% or even less to begin with - but no-one knows what they`d be paying by mid-2013.
Remortgage - the ‘you` factor
As with any financial question, there`s no ‘right` decision, as it`s different for each individual. If, like many others, you`re looking to remortgage but not sure if it`s a good idea - or not sure what kind of deal to choose if you do remortgage - it`s always best to talk to a mortgage adviser before you make any firm decisions.
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