Virtually all new mortgages have either a fixed rate or a discounted variable (or tracker) rate for an initial period. After this period ends the mortgage interest rate and corresponding monthly payments will usually default to the lenders standard variable rate or SVR.
Almost without exception this SVR will be uncompetitive against the wider mortgage market, so a pro-active review of options by you the borrower is needed.
So, what are the options?
1 – do nothing and continue to pay the SVR. This is rarely the best option, but can be advantageous if a change of circumstances such as a house move is imminent or you have had a job change or credit problems which could restrict options. However, in all cases a professional review should be carried out so that an informed choice can be taken.
2 – take out a new product offered by the existing lender. When I say “offered” this will usually be a letter some months before the old rate is due to end and nothing will happen automatically as there has to be some action from you to switch. However, assuming you reviewed all of the market options at the time of buying your home, why wouldn't you want to do it once again now? If staying with the existing lender either on their SVR or a new “deal” is the right choice, your adviser will be able to confirm this.
3 – shop around for the most appropriate mortgage product to suit your needs now and moving forwards. The mortgage market has become increasingly complex, so the slight downside to this option is that there is more work involved, although the level of effort can be reduced dramatically by involving an independent mortgage adviser. Most good things in life do take some additional effort and for your largest ever financial commitment, surely a couple of hours of your time working with an expert is worth the effort given the possible costs of a wrong decision? A good mortgage adviser will look at options 1, 2 and 3 for you before deciding upon the best course of action.
At present there is a huge amount of inertia in the mortgage market, with some people thinking that just because their monthly payments haven’t increased for many years they are in a good position. Whilst against historic interest rates this may be the case, there are some amazing products around at present, so why wouldn’t you take a no obligation review to see if you really are on a good deal?
Paul Hardingham and Tony Ibson are Mortgage and Protection Advisers at Innovate Mortgages and Loans. Both have over 20 years of experience advising individuals and businesses across the North East of England. They can be contacted for bespoke advice at firstname.lastname@example.org or email@example.com or call 0191 223 3514.
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Innovate Mortgages and Loans is a trading style of Innovation Financial Management Ltd.