So you borrowed money two years ago to buy your new house or property. And now every time you think of it you need to pop an Aspirin. You considered repayment but hate the redemption penalty which means you’d have to pay at least two months interest extra as penalty. You wonder how these lenders think up these tactics to milk money out of you. You sometimes even wonder if it’s all really legal.
Never mind. We’ve all been there and done that. Here many borrowers have pooled together to share their experiences – their woes and solutions, with a view to help each other and other borrowers like you.
If you had taken a fixed rate mortgage then you are probably cursing your luck because the lender’s standard variable rate dropped and you were stuck with high interest payment. You’d be unable to change your mortgage during the 'early redemption penalty period' without paying a fee, which may amount to as much as 2 – 6 months’ mortgage repayments.
The Mortgage Advice Bureau has compiled figures which might interest you. There have been five interest rate hikes since November 2003. Today, for a typical £100,000 repayment loan you would be paying a standard variable rate of 6.75 percent which has increased from the average fixed rate of 4.23 percent. If you calculate that you’d find your repayments have increased from £547 to £699.
If you wish to repay your mortgage in full or in part during a tie-in period you will almost certainly have to pay redemption penalties to the lender. But sometimes that is the best course of action. There are many among us who have wisely switched their mortgage and thus started saving hundreds of pounds per year. You could go shopping for a re-mortgaging option too; the sooner you start the better it is for you because re-mortgaging can take at least eight weeks. There is a good chance that you too could save some money by re-mortgaging.
Re-mortgaging means switching to a different mortgage deal. You could do this with your existing mortgage lender; often it is with another bank, lender or building society.
Most people re-mortgage in order to reduce costs. Switching to a lower interest rate they benefit either from lower monthly repayments, or keep the monthly repayments the same, thus repaying the loan quicker and reducing the overall term of the mortgage. You can use a remortgage calculator to get an idea of how much you could save by re-mortgaging.
Some people also remortgage to raise additional cash.
One of our associates had been paying £680-a-month since taking out a two-year fixed rate of just 3.69 per cent to buy his £140,000 house in London suburbs. A good advisor helped him find a loan with a capped rate of 4.99 percent. In a capped rate mortgage you are ensured that the interest rate will neither rise nor fall above/below a predefined threshold. The interest rate is usually the same as the lender's standard variable rate, but will not rise above the capped rate.
We suggest you look around, ask how likely interest rates are to change, what is the lock-in period and then spend some time reading the fine print, i.e. understanding it thoroughly so that you’re not taken by surprise later when the interest rate rises. Some of the cheapest loans do not charge an early repayment penalty; you just might find it right down your street. This way you would also be able to pick the best type or mortgage suitable for you and avoid heartaches later.
Posted
on : Sat, 19 Mar 2005 00:00 GMT | Mortgages News
By : Pippa Fielding
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