Most mortgage deals have an initial offer period of between 2 and 5 years and when this term expires, you will need to think about your options going forward in order to avoid returning to your current lenders Standard Variable Rate.
Some lenders (but not all) will offer a range of products to their customers to try and retain the business but these products are usually less attractive deals than would be offered to new customers and so it definitively pays to shop around as the savings to be made can be substantial.
Undoubtedly the best way to assess your options is to speak to an impartial firm of Mortgage Brokers such as ourselves so that your needs can be properly analysed and recommendations made which suit your current and future circumstances.
Mortgage Lenders are very aware of the general public's ability to source rate information from a variety of online sites and, in an attempt to appear competitive and continue to promote their brand awareness, have come up with a variety of ways to offer cheaper rates than their competitors.
The most common method is fee-charging. Lenders usually add on a fee for a particular remortgage product once the mortgage completes. Historically this may have been in the region of £500 but in today's market it can be double or treble this figure. Other lenders have percentage based fees based upon the size of the loan.
This requires some careful calculations on the part of the borrower as the fee can quickly negate much of the benefit of an attractive rate. As an example, a customer requiring a mortgage of £150,000 may see two products at 5.5% from competing lenders. If Lender A provides the mortgage with a flat fee of £1000 and Lender B offers their product with a fee of 1% then the fee would be £1500. If a client looking at the above two lenders only had a mortgage of £80,000 then clearly Lender B with an £800 completion fee would work out cheaper. The complexity of fixed and variable fees has ensured that there is no longer one best product available.
Another way that lenders can offer cheaper products than would otherwise be profitable for them to promote is in the use of early repayment charges. Within the initial offer period it is common to find that there would be penalties for repaying your mortgage or trying to move it to a more competitive product. Most clients accept this in exchange for a competitively priced deal and would be happy to see out the initial 2 or 3 year period without wishing to alter the terms of their mortgage arrangements. At the end of this period however it is important that you will be free to reconsider your options either with the lender you are with or by looking at the market as a whole and this relies upon the fact that the penalty associated with the mortgage ends when the initial offer also ceases.
Some products however have 'overhanging' penalties which means that even once the initial rate has ended, you must return to the lenders standard variable rate (which could easily be 2% higher) for an additional period. We do not recommend such products here at Premier Financial Services as the jump to standard rate can be quite a severe financial shock and most of the benefit of an initially cheaper deal is undone by the forced return to a higher rate.
Clearly, one can only begin to compare the competitiveness of one product against another by taking not just the monthly payments associated with a scheme but also the set-up and exit charges. However there are other issues which will influence your decision over which product is best for you, these could include:
- Whether overpayments are allowed
- Whether interest accrues daily, monthly or yearly
- Whether to opt for a fixed rate or a variable rate
- How long the initial rate offer lasts
- The service standards of a particular lender
- How quickly a lender can process your application
Hopefully this article will have helped you to understand some of the important factors for consideration when selecting the right mortgage for you but please do contact us through our website if you would like a free appraisal of your situation and truly impartial view on the best remortgage offer available.