Last Updated: 18-09-2018
Reading Time: 2 minutes
It’s only natural for homeowners to want to shop around once their initial rate expires. The vast majority of mortgages come with an incentivised fixed rate for the first 2-3 years. Then they default to the lenders SVR or tracker rate.
You wouldn’t believe how many people settle for this inflated interest rate. But, to be fair, the recent market has it’s part. It’s helped entrench this notion that you’re stuck with those higher repayments.
Mortgage Prisoners: stuck with the hard cell?
Let’s explain. People who bought homes towards the end of the property boom, 2007/2008, soon found their homes in negative equity. In other words, their homes were worth less than their outstanding mortgage.
In those circumstances, it didn’t make sense to remortgage. The homeowner would first have to find the settlement fee*. Then they’d have had to find the difference between the current value of their home and the balance of their mortgage. These people became known as mortgage prisoners.
The good news is that the recent rises in house prices have lifted many homeowners out of this situation.
Another element to being in mortgage jail was credit rating. What was an acceptable credit rating then may not fit today’s Responsible Lending guidelines. Knowing that they had impaired credit also prevented many from remortgaging.
*Early Repayment Fees: Don’t Get Caught Out
Most mortgages carry a fee you have to pay for winding up your mortgage early. This amount will help you decide whether remortgaging is right for you.
The whole point of changing to a mortgage with lower interest rates is to save money over the initial term. If it’s going to cost more in early repayment fees than you’d save, remortgaging is a futile exercise.
Don’t be afraid of hurting your lender’s feelings
For contractors especially, as demand for their skills increases, remortgaging is a viable option.
This is because your high earning potential ticks one box. If you have a previous exemplary repayment history, it ticks another. This combination makes you ideal borrowers; banks want your business.
What’s more, remortgaging rates are amongst the most competitive on the market. Lenders need customers like you as much as maybe you need them. Your stability helps balance the risk on their loan books.
Maybe you’re considering changing the repayment mortgage you had as a permie. There’s never been a better time to give contract-based underwriting a go.
Or perhaps you can see your introductory rate coming to an end soon. If you don’t fancy the lender’s SVR, no one’s forcing you to suffer it.
Whatever your circumstance, we’ll tell you if remortgaging is the right thing for you. Impartial advice, with only one aim: saving you money on your mortgage repayments.
John Yerou is a pioneer of contractor mortgages and owner and founder of Freelancer Financials, Contractor Mortgages®, C&F Mortgages and Self Employed Mortgages, trading styles and brands of the award-winning Mortgage Quest Ltd.
Posted by John Yerou
on July 8th, 2015 10:06am in