The Remortgage Conundrum
It's now 2009 and many home owners have been holding off on their remortgage for months now. Why? Because they are better off staying on their variable rate than remortgaging. A few years ago, you would make preperations months in advance to avoid an inevitable few hundred pounds increase on your mortgage payments. Nowadays, people can't wait to come to the end of their fixed mortgage deal and sit on their variable rate - thanks to the actions of the Bank of England over recent months.
However, there are potential problems ahead if you bought your home with a once decent 15-25% deposit. Many people will be blissfully unaware right now that their home is slowly eating away at their equity, and to add to their woes, their home won't sell for love nor money if they need to get out. I'm not talking about those people who took out a 90%+LTV (Loan to Value) mortgage two years ago, these homeowners have already realised problems remortgaging. It's the homeowners who were the cautious and sensible borrowers, who have made efforts to repay lump sums of their mortgage, who are now in trouble. It's time to check on your situation, as you may be one of the millions of homeowners unable to remortgage, or you could well be looking at an 90%-95% remortgage when you are ready to refinance.
No problem now though surely? After all, there is no need to Remortgage with low variable rates. When the rates start to creep up, it's going to be a huge shock for millions of borrowers. Why? Right now 17/01/2009 the best deal for a 90% remortgage is over seven percent. This is at a time when we have the base rate at 1.5% and SWAP rates fluctuating between 2-3% (SWAP rates are the levels at which the banks borrow at to fund fixed rate mortgages).
So how can you help yourself get a good deal when the time comes? The not so easy method is to put away the extra cash you are saving from being on your lower variable rate and use it to pay off more of your mortgage. It sounds simple, but with the credit crunch it won't be easy, as many people are finding the extra cash flow a blessing in disguise to keep them afloat. By putting any extra cash you have towards your mortgage, you will reduce your mortgage balance and therefore increase the equity in your home.
Work out:
- Then work out what another 15% reduction in house prices would do to your equity this year.
There is a free home valuation and mortgage check service available with our CeMAP qualified and regulated mortgage consultants.
Once we have checked your situation for you, you will be in a much better position to decide whether you go for a remortgage now or sit and plan your best solution.
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