Mortgage: Expert gives advice on how to save money
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Mortgage payments are some of the most significant financial responsibilities a person will ever take on in their lifetime, and many will want these to be as low as possible. In a similar sense, many borrowers are motoring towards paying off their mortgage, and higher interest rates could hinder their ultimate goal. But according to the latest research, many borrowers are not doing themselves any financial favours when it comes to the actions they are taking on their mortgage.
L&C Mortgages has found borrowers could be paying £2,500 more than they actually need to, if they fail to refinances and instead allow their loan to revert to their lender’s Standard Variable Rate (SVR).
The research showed the amount borrowers may be overpaying has increased from the recorded £2,159 last year, to £2,540 this year.
The total cost of borrowers not taking action on this matter is equivalent to around £490million per year.
A Standard Variable Rate, as referenced by L&C, is an interest rate which is set by a person’s lender. People are most likely to go onto this rate after finishing a fixed rate with their lender.
For example, if someone were to take out a two-year fixed rate deal, then after this period came to an end, they would move onto an SVR.
However, the problem lies with the fact an SVR usually has a higher interest rate than those which are on offer through other types of mortgage.
If a lender were to raise its SVR, a person’s monthly payments would increase.
But as the extra money paid would go towards the higher interest rate and not the capital, individuals would not be paying off their mortgage more quickly.
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While an SVR could be suitable for some, many will want to avoid this at all costs, and so will need to act ahead of time to secure a new fixed deal.
L&C Mortgages’ associate director of communications, David Hollingworth, provided further insight into the mortgage market at present, and the influences over rates and prices.
He said: “Lender competition is fierce and that has helped drive mortgage rates down to new historic lows over the last 12 months.
“That’s great news for mortgage borrowers coming to the end of a deal, but also underlines just how important it is to shop around for a new deal.
“With other living costs on the rise, it’s important borrowers keep a tight grip on such a big part of their monthly budget.
“Although borrowers have arguably never had it so good, it’s not all about headline rate and lender fees and criteria are important considerations in finding the right mortgage deal.
“With the market changing so rapidly, advice will help homeowners make the most of the rates on offer.”
Remortgaging is the process of securing a new fixed rate deal, which many people will do in order to avoid the SVR.
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This could be as simple as switching to a new fixed rate deal with an existing lender, but some may choose an alternative option.
As aforementioned, shopping around could be the best option to help Britons’ secure the cheapest deal or the best arrangement for their personal circumstances.
A number of lenders have remortgaging calculators, and price comparison websites may help. Alternatively, there is also guidance on the matter through Government-backed websites such as MoneyHelper.
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