The Question
I am due to exit a five-year fixed rate mortgage deal in August. I realise it’s a long way off, but I want to be prepared. When is the earliest I can start searching for a new deal?
Also, with interest rates falling could I change deals before things complete if better rates emerge?
Darren’s Answer
There are many variables that will impact whether rates will drop over the coming months.
Generally, interest rates have fluctuated recently and are predicted to drop more slowly than previously forecasted.
The Bank of England (BoE) Base Rate drop in February has boosted confidence. But banks are not dependent on the BoE Base Rate because they will use swap rates when looking at mortgage lending.
In terms of your rate expiry, searching for a new deal can be six months, four months or three months before the end of your deal, depending on the lender.
There are two main options when you are nearing the end of your current deal, let’s break these down.
Remortgage to a new lender
A mortgage broker can search the market based on your outstanding mortgage balance and property value, to see what rates are available to you.
This would effectively be a new mortgage application which can incur legal costs and other set up fees (your broker can ensure free legals and free valuation with certain lenders). Some lenders also offer cashback deals for remortgage cases.
There will be a credit scored application and a full income / expenditure assessment.
OR
Switch to a new rate with your current lender
This is classed as a rate switch or product transfer.
The benefits of this are that there is almost never a credit score or need to provide proof of income as the lender has already assumed the risk with your current mortgage.
A valuation won’t be required either as the lender will have their own internal valuation of the property, which can mean your loan-to-value is positively impacted by the lender’s valuation, rather than market value. This could result in a better rate at this loan-to-value bracket.
This is an important decision to make, and I would always recommend speaking to a broker, who can provide an assessment of your remortgage options and give you the best rates on the market for your circumstances.
In addition, a broker can check your deal again before your new rate takes effect to ensure this is still the best deal for your circumstances.
Meet our expert…
Darren Polson is head of mortgage operations at Aberdein Considine. He has been writing a regular column for What Mortgage for over two years and is now here to answer YOUR questions.
If you have a question for Darren please email kate.saines@emap.com or leave a message in the comments below.
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