Don’t make this £2k a year mortgage mistake
Homeowners coming to the end of their fixed mortgage period could end up paying a massive £2,100 a year more in interest if they revert to to a standard variable rate (SVR) instead of switching to a new cheap fixed rate, said comparethemarket.com.
The price comparison site found that 10% of households on fixed mortgage terms will see their fixed deals come to the end in the next six months – totalling 850,000 homes.
The average two-year fixed mortgage rate two years ago in June 2017 was 2.30%, according to Moneyfacts. By contrast, the average SVR today is 4.89%, a jump of 2.59%. Homeowners coming to the end of a two-year fixed mortgage and rolling onto an SVR would therefore pay £175 more each month, with monthly repayments jumping from an average of £680 to £855 (based on a 20-year £130,000 mortgage).
Set your repayments
However, homeowners don’t need to move onto their lender’s SVR. Today’s average two-year fixed term rate is 2.47% meaning the same homeowner’s bills would only rise £11 a month to £691 if they were to remortgage onto the average fixed rate. The difference may be even less if they choose one of the more competitive rates available on the market.
Of those homeowners who have stuck with a standard variable rate mortgage, over a quarter (28%) said that they didn’t think it would save them much money. Over a fifth (21%) have not switched because they are not worried about rising interest rates. This is in spite of the fact that over a third (35%) say they would have to cut other costs to afford the payments, should interest rates rise in the future. As many as 16% said they simply have not got around to remortgaging.
Are you able to remortgage?
Over one in 10 (11%) have not moved off an SVR because they are worried about not meeting the borrowing criteria of lenders, said comparethemarket.com. It’s launched a Mortgage Eligibility Checker, which calculates how much you might be able to borrow and whether you are eligible for a mortgage.
Mark Gordon, director at comparethemarket.com, said: “Rolling onto a standard variable rate mortgage can cost you thousands of pounds. For those people on a standard variable rate mortgage, the additional costs should be a wake-up call. Not only could your mortgage get more expensive if the base rate rises, but SVR mortgages tend to be much more expensive than fixed rate deals available.”