Moving home can be a big hassle. We know contractors often see the value in a new mortgage on a lower interest rate. Can’t help but notice it, in fact, given how acute their eyes pick out savings.
But by the time they’ve:
- looked for (and found) a new home that everyone’s happy with;
- upped sticks (and downed sticks again);
- redecorated to put their own (or partner’s) stamp on the place…
…they find themselves asking the same question: is it worth it?
Unless you’ve a specific reason for moving, then, yeah. Time spent facilitating that move may not prove as fiscal a strategy as it did at first on paper.
But what if you could access those lower interest rates without having to move?
What if, come introductory offer end, it made sense to switch mortgage provider? Not move home, move mortgage.
The marketplace doesn’t always lend itself to such a scenario. But right now, we can say without fear of retribution: it’s never been a better time to remortgage.
And while you’re there, sitting on your mortgage provider’s standard variable rate? You’re spending thousands of pounds a year that you needn’t!
What’s more, you’ve already done the hard work. You’ve proven your affordability once before by getting the mortgage you’ve got. And with more lenders opening their doors, remortgaging for contractors is easier than ever.
So, do you want to pocket a saving for the sake of a phone call or two? Or put four figures back into your pocket every year rather than gift it to your current mortgage lender?
Thought you might; here’s how.
The four cornerstones of remortgaging for contractors
When it’s done right, remortgaging is the easiest way in the world to save money. Let’s face it. If you’re happy to pay a bank’s inflated SVR, they’re not going to write to you and ask you to stop.
The only person who’s going to effect change in your monthly payment is you.
Now, there are times when remortgaging doesn’t make sense, especially if:
- early redemption fees on your current loan will cost more than you’ll save;
- you’re on an unbeatable lifetime tracker rate;
- you’ve seen the value in remortgaging and have recently switched already.
If any of those circumstances are applicable to you, fair enough. You’re better off staying as you are. But the fact is, most homeowners aren’t in that situation.
Here’s an eye-watering statistic to back that up:
Almost 2 million UK homeowners could save £170 a month by switching to a new 2-year fixed rate mortgage.
Over a year, that’s what? 2,000,000 × (£170 × 12) = £4,080,000,000.
More than £4bn a year goes to mortgage lenders just because homeowners don’t switch to a lower rate. That’s based on figures from Legal & General in June 2016.
Now are you ready to switch? Good. Here we go
The benefits of switching to a lower interest rate
I’m positive I don’t need to tell you how best you could put the extra cash from remortgaging to good use. But before you plan Christmas in the Maldives, let’s run this by you.
1. Pay off your mortgage early
In the early years of a mortgage, the majority of your monthly repayment pays off interest alone. You don’t start to pay off significant amounts of the capital until much later.
But what would happen if you continued paying what you are now, but didn’t need to?
Say your monthly payment is £600 now. With a remortgage, you could maybe reduce that figure by 10%, to £540.
You could just pocket that extra cash and do with it whatever you like. But you could also continue to pay £600 pcm.
The effect of overpaying in this way is considerable. That’s because you’re paying off capital as well as interest. The lower your mortgage balance, the less capital a lender has to charge interest on.
2. Lower your interest rate
This sounds like stating the obvious, but here goes. Reducing your interest rate can help you reduce the amount you repay every month.
That sounds innocuous, so let’s expand.
Say the SVR you’re on now is 3.49%. That’s a realistic amount, especially for contractors who’ve had their mortgage for a while. And it’s nothing like the 5–6% of the housing boom.
But we know other reasons why many contractors tend not to switch — besides apathy. It’s because they don’t want to go through the Hell of getting the mortgage like it was a few years ago.
That’s okay, too; we understand, 100%.
In the last two years, many more lenders have become contractor-friendly. Prior to that, it wasn’t so easy to access contract-based underwriting.
Contractors have so many horror stories about trying to get a High Street mortgage it’s scary. But remortgages for contractors have changed. A lot.
Switching mortgage provider — if only to get a lower interest rate — makes absolute sense. We know it, you know it and so too do the contractor-friendly mortgage lenders. Better late than never.
3. Equity release
You may have good reason for remortgaging besides reducing your term or monthly payment. If you’ve had your mortgage a while — and especially if you’ve overpaid — your home will have equity.
The list is endless for reasons why you’d want to leverage your bricks and mortar for cold, hard cash. But here are just a few of the reasons clients have shared with us for remortgaging to release equity:
- The bank of mom and dad:
using equity to help kids get on the property ladder;
- Home improvements:
everything from conservatories to Jacuzzis and plenty more between;
- Debt Consolidation:
pay off those debts and credit cards;
- Buy a holiday home/trip of a lifetime:
we never had bucket lists as kids, but it’s good to see old aspirations are still worth the luxury;
- Start or reinvest into a business:
did you know the second biggest sector to launch their limited company was pensioners? Why not!?
- Private medication:
sad as it is, the NHS is struggling. Why wait for potential life-saving procedures when you can go private and have done with it in a week?
And one last point about many contractors who’ve remortgaged to release equity. They’re still better off — even with a bigger mortgage — than they were on their old SVR. Go figure!
4. Debt consolidation
Before the credit crunch, every day you’d get a new offer to consolidate debt through the door. If for nothing else, millions of trees and postmen can be grateful to economic meltdown.
But even now, contractors have multiple lines of credit like everyone else. We’ve never seen interest rates on mortgages so low. It would be remiss to overlook the opportunity to remortgage for debt consolidation.
Yes, you may lose a little equity at first. But if you repay only a tiny amount of what you’re saving back into your remortgage? You’ll find that equity building back up sooner rather than later.
And it’s addictive (or an OCD). The more you repay, the quicker you see the balance come down. The less you owe, the more you want to repay (circumstances notwithstanding, of course).
Interest rates are at an all-time low. And with Brexit, it’s unlikely we’ll see them rise any time soon. Yes, Mark Carney’s on the way out. But whoever takes over as the governor of the BoE will want to keep the UK economy on an even keel.
One day, interest rates will rise again; they must. But make hay while the sun shines. Ask us or your broker about using your contract rate to remortgage. Lenders are there to help, not hinder, your search for a competitive contractor mortgage.
This article is brought to you by John Yerou of Freelancer Financials.