With the interest rate cut announced earlier this week, should you remortgage now?
Following the interest rate cut, you may wonder how it will affect your mortgage rates and if you should remortgage.
The Bank of England cut interest rates this week in a bid to support the economy during the Coronovirus outbreak. Rates were reduced from 0.75% to 0.25% taking borrowing costs down to the lowest level in history.
What is remortgaging?
Remortgaging is when you take out a new mortgage on a property you currently own. This would be to replace your existing mortgage or to release money from your equity. At present, around 30% of home loans in the UK are remortgages.
Your mortgage is a huge financial commitment and by having the cheapest mortgage deal available to you can save £1000s each year.
There are several reasons you may consider remortgaging:
- Your current deal is about to end. Your mortgage deal is likely to be fixed for two or five years, after which you will be put onto the lender’s standard variable rate which is likely to be higher. Start looking for a new mortgage around three months before your current deal is about to end.
- You want a better rate. If you’re tied to an initial deal, you may have to pay a large early repayment charge which can be as much as 5% of your outstanding loan and you may have an admin fee to pay on top. However, the savings could outweigh this so get the correct advice.
- Your home’s value has gone up. You may find that if you have more equity you qualify for a lower loan to value band, and eligible for a better rate.
- You are concerned about interest rates rising. If you’re on a variable rate you may want to fix it for peace of mind.
- You want to overpay. Your current mortgage may not allow you to make overpayments.
- You want to borrow funds. If you want to release equity, make sure this is the most efficient form of borrowing. We can help you to work out if this is the most affordable and cost-effective option.
What will happen to mortgage rates now?
As a result of this cut in interest rates, some mortgages will get cheaper – for example if you are on a tracker mortgage, your repayments will be lower. These people will save around £25 per month per £100,000 or mortgage whereas those on a fixed rate won’t notice any change.
It will take a few weeks to filter through, and we will see the rates of new mortgage fixes drop making a good time to remortgage.
Several lenders have already said that they will offer their customers a 3 month mortgage holiday for those affected by the Cornovirus and people could try to create a small cash-buffer by seeing if they can save money by switching their mortgage.
The extent of the impact of Coronavirus on the housing market is yet unknown, although the Bank of England governor suggested that the UK economy could shrink in the coming months.
For savers, the news isn’t so welcome as saving rates have been low for a long time and this cut could lead to further reductions in rates.
Talk to us if you want to find out if this new rate could save you money. We offer phone appointments at a time to suit you.