Am I Paying Too Much Interest On My Mortgage?

“My Mortgage Is Too High”

One of the more alarming statistics I’ve read recently suggests that more than a million homeowners – 1.3m, to be more precise – have allowed their mortgage to lapse to their lender’s standard variable rate (SVR) and are paying too much.

According to the price comparison website Money Supermarket, who commissioned the research, this means that collectively UK homeowners are paying around £175m a month more than they could be if they were on a fixed or preferential rate.

Lapsing onto a lender’s SVR is a common pitfall and one that many new clients who come to Oportfolio for help and advice have fallen into, and it’s very common for people to wait until their fixed deal has ended before they act – even though it makes better sense to arrange a new deal a few months before the current one expires.

There are a number of reasons why this tends to happen and it’s often a combination of factors that leave people shelling out way more than they could and should be paying in mortgage repayments:

“It’s Too Much Hassle To Swap”

We hear this a lot, but if all you want to do is swap to a better rate with the same lender then many mortgage providers offer existing borrowers the opportunity to switch without having to provide any paperwork.

Often, all it takes is a simple phone call to the lender to transfer to a more preferential rate. In most cases, the lenders who offer this facility will not treat the transfer as a new mortgage and so no exit penalty is applied.

Even if there is a fee to pay, it may still end up being cheaper in the long run to switch.

“I’m Worried I Might Not Meet New Lending Criteria”

See above. Your lender may well offer a no-application product transfer to a better rate – in fact, because the cost of attracting new borrowers is relatively high, it’s usually in their interests to make sure existing borrowers have options – which gives you some room for manoeuvre.

If your lender offers the option to transfer your product and you’re sure you would struggle to remortgage with another lender, then this may be the right option for you.

But a word of caution: I’ve met many people who have come to me absolutely convinced beyond any shadow of doubt that they can’t move or remortgage because they won’t meet the lending criteria, only to find that they have actually have options.

So my advice is always to talk to a professional adviser before you commit to a further product with your existing lender. But more on that shortly.

We’re only talking a percentage or two – it’s not that expensive to be on an SVR

Think again. Based on current average figures from Which? the average fixed-rate mortgage is 2.09% and the average SVR mortgage is 3.99%.

Let’s assume you have a £300,000 mortgage with 20 years remaining.

On a fixed rate of 2.09% you’ll be paying £1,530pcm. On the SVR that monthly repayment rises to £1816 – a difference of £286.

If nothing changed over the remaining 20 years of your mortgage term, you’d end up spending £68,640 more on an SVR than you would on a fixed rate.

Unless you have a concrete plan to pay off your mortgage within a relatively short period of time – perhaps through an inheritance – it rarely makes sense to stay on a standard variable rate mortgage.

“How Much Is Too Much For A Mortgage?”

So, should you just switch to a new product with your existing lender?

The answer to that is maybe, and maybe not.

The fact is that unless you shop around you’ll never know whether the preferential rates you can access with your existing lender through a product transfer represent the best value – and the chances are you won’t always be able to find the best rates anyway.

That’s why I’d always urge people to speak to a professional mortgage adviser. At Oportfolio, for example, we can often find products you won’t find online or on the high street yourself, and our market knowledge means we can match your long- and short-term needs to the most suitable product.

Lenders like new borrowers and, just as businesses like Sky and leading phone companies will have attractive deals to entice new business through the door, so the new customer products offered by mortgage companies are often incentivised accordingly.

In the end, a professional adviser will usually be best placed to determine what your options are and then find the most suitable product to meet your needs now and in the future. If the right deal is to stick with your current lender, then a reputable broker will advise you to do that rather than move.

If you’re coming to the end of your fixed deal or you’ve lapsed onto an SVR, maybe now is the time to get in touch and see what we can do to save you money on your monthly repayments.

We’ve talked a lot in the past about mortgages and mortgage rates, but with interest rates at a competitive level and no sign yet of the market changing for the worse, now is a good time to find out if you’re missing out on a significant saving.

There are all sorts of good reasons to remortgage, just as there are times when it’s not such a good idea to change the borrowing you’ve got on your house.

If any of these statements apply to you, then you could be saving yourselves hundreds – if not thousands – of pounds a year by switching your loan to a new lender or a better rate.

• You’re coming to the end of your current mortgage deal
• You’ve already lapsed to your lender’s standard variable rate (SVR)
• Your house has increased significantly in value since you took out your current mortgage
• You want to overpay your mortgage, but your lender won’t allow it
• You want more flexibility in how you manage your mortgage
• You should also consider switching your mortgage if you want to borrow more money for whatever reason.

If you’re currently on an interest-only mortgage and want to switch to a repayment mortgage, your lender should be happy to move you over to the arrangement without the need to remortgage (though expect the lender to be difficult about allowing you to switch the other way – from repayment to interest-only).

• You’re coming to the end of your current deal or your fixed-rate or fixed-term mortgage has already run out

We talked a lot about this in our last blog, so we won’t labour the point again here, save to say that allowing yourself to lapse onto your lender’s SVR is always likely to prove more expensive.

Most banks and building societies will allow you to arrange a replacement deal three to six months before your current arrangement expires, but it’s a good idea to speak to a professional mortgage adviser who will be able to compare your current lender’s products against rival deals to ensure you’re getting the best possible deal.

“I’ve Paid Too Much Interest On My Mortgage”

If you’ve already slipped onto your lender’s SVR, then you need to take action now.

Again, speak to a professional mortgage adviser to understand what your options are – but at the end of the day, your lender should be able to let you switch to a fixed-rate or fixed-term deal without needing to make a formal application. That said, look out for any fees that might be applicable.

• Your house is worth significantly more

If your house is now worth significantly more than the outstanding debt on it, your loan to value (LTV) requirement will be significantly lower too – which may mean you qualify for lower rates with your existing lender or another lender.

A professional mortgage adviser like Oportfolio will be able to look at the market and determine whether this is likely to apply to you and what might be involved should you wish to switch to a new product.

• You want to overpay your mortgage, but your lender won’t allow it

Paying off your mortgage earlier than the term agreed can save a great deal of money, but the terms of your existing deal may make that difficult.

If you’re lucky enough to be in the position to repay over and above your minimum mortgage payment, then this could a very effective way of saving money over the longer term.

It’s a good idea to discuss this with an independent financial adviser who can assess the cost-benefit of overpaying in the context of the financial planning you or they are already doing on your behalf. But if you decide this is a route you want to explore, talk to a mortgage adviser to get a sense of the products that are worth considering.

• You want more flexibility in how you manage your mortgage

From offset mortgages that reflect your current or savings accounts to mortgages that allow you to take a payment holiday or vary your monthly payments, having flexibility over how you repay your loan can be really important.

If you or anyone you know would like to speak to an expert about how much you are currently paying on your mortgage, please feel free to give our friendly and knowledgeable advisors a call today.