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Moving Your Mortgage
Moving Your Mortgage
In the current period of economic uncertainty, recent falls in interest rates in most countries have brought welcome respite to holders of variable-rate mortgages. The recently lowered rates, however, are not such good news for homeowners with fixed-rate loans taken before June 2008. Since then, swap rates (used to price fixed-rate loans) have decreased from nearly 6.5% to around 3.25%.
With interest rates set to fall even further – 2% is predicted for the UK by April next year and the European Central Bank is also expected to reduce euro interest rates to at least below 3% – now may be the time to consider moving your mortgage.
Remortgaging is an accepted leveraging tool for property owners and investors, and changing your mortgage lender or type of mortgage can often lead to substantial savings. However, the costs involved are often high so it is essential to take expert advice and shop around.
“The most important thing is to make sure the size of your mortgage justifies the expenses you will incur when you remortgage,” says Ken Thorkildsen, Director of Obelisk Private Finance. “Bear in mind that these expenses may include early redemption charges from the old bank and set up fees with the new bank.”
Most banks impose early redemption charges on those who choose to change lenders before the mortgage term is finished. These charges are typically around 3% of the outstanding loan, although in some countries early redemption charges can be as high as 5% – Bulgaria is an example of this higher charge. In Spain, however, early redemption charges cannot legally exceed 0.5% of the outstanding loan.
When taking on a new mortgage, look carefully at the conditions regarding early redemption. It is not uncommon for a bank to enforce a 3 or 6 month redemption charge. “Read the small print carefully,” advises Ken, “as an attractive low interest rate may be hiding punitive costs and fees.”
If you decide to remortgage, it is also a good idea to reassess your loan. Your financial circumstances may have changed since you took out the mortgage and your new loan should reflect these. “It may be worth using an amount of savings to pay off part of your loan in return for a better mortgage package,” says Ken, “because the larger the loan, the more difficult it is to negotiate a good deal with the bank.”
Professional advice is essential – not least because a financial expert can help you find the best mortgage deal for your circumstances. Professionals can also source the best interest rates as well as negotiate fees.
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