During a mortgage review it shouldn’t just be a case of checking what your existing lender is offering you and then comparing it to what other lenders might be able to offer you.
We cannot tell you the amount of times we’ve heard this when comparing Product Switch rates with your existing lender, to interest rates available via a remortgage to a new lender when there is very little difference between the interest rates.
A mortgage review should be a complete review of your current circumstances, future plans, and the overall terms of your mortgage.
A lot of people do not look further than the mortgage payment when comparing deals. However, if a mortgage review is done properly, remortgaging and altering the terms of your mortgage could save you years on your mortgage and thousands of pounds in the long run.
So here’s an example:
- Your current mortgage is £250,000. You’ve just come to the end of your two year rate and you’ve now got 33 years remaining on your existing mortgage.
- Your current lender is offering you an interest rate of 5.5% and your mortgage payment will be £1,370.
- We compare this to what other lenders might be able to offer you and their rate is 5.4%.
- If you keep the terms of your mortgage the same, your monthly payments would reduce to £1,354 which is a £384 saving over the next two years.
We’ve come across many clients who take the view that the saving isn’t enough, its not worth the hassle of a remortgage. This response is often down to the individual and it might be influenced by their original experience of obtaining a mortgage e.g. if it was a tricky transaction due to complex income, or debt.
However, what if you remortgage to a new lender, securing the 5.4% interest rate and lower your term by one year from 33 years to 32 years?
- Your monthly payments will stay at approximately £1,370 per month.
- In the long run, you’ve just knocked one year off your mortgage and believe me, when you reach early retirement age of 55, 60, you’ll be pleased you made these adjustments.
- More importantly, you’ve just saved yourself approximately £17,757 by shortening the term by 1 year based on current interest rates.
If you can do this every time that you review your mortgage, you could ensure you pay off your mortgage much sooner than originally planned, saving yourself an obscene amount of money in interest.
Has another mortgage adviser been through this cost analysis with you or have they simply looked at the difference in monthly mortgage payment when you’re making the decision as to what you wish to do?