Martin Lewis shared crucial tips to help those on a fixed mortgage “lock in” the best deal, even if your renewal is months away.
The Money Saving Expert shared the information on the most recent episode of the Martin Lewis Money Show which focused on all things housing.
Last week the Bank of England increased its base interest rate for the tenth time in a row taking it up to 4%.
This move will impact millions of homeowners as those on tracker mortgages, which directly follows the base rate.
Those set to remortgage will also see a significant rise due to how much rates have risen over the last year.
The Money Saving Expert shared his tips for remortgaging after one viewer called Stephen got in touch to ask whether he should dip into savings to pay his mortgage as his current fix ends in a couple of months.
Stephen wrote: “We may have to dip into our £28,000 savings, which is meant to be for our kid's education, to pay for our rise in the mortgage.
"I am getting really worried now - my five year fix rate is coming to an end in April. I don't know enough about mortgages so could do with some advice - what are my options?”
The Money Saving Expert said the first thing you need to do is gather as much information about your mortgage as you can.
This includes:
- your current rate
- the type of mortgage you have
- when your deal ends
- the term - how much is has it left
- switch penalties - Martin said if there are, then it may just end your chances of moving and you may have to stick with it.
Martin added: “The most important thing everyone needs to get about mortgages is the Loan To Value (LTV), this is the proportion of your home’s current value that you’re borrowing.
“So let's say the home is worth £100,000, you’ve got a £10,000 deposit as a first-time buyer or £10,000 equity, therefore you’re borrowing £90,000 of £100,000 which is 90%. The lower the Loan To Value the better.
“The problem with current value is that as house prices go down, your Loan To Value goes up.
"Rates get cheaper at 90%, 80% 75% until 60% - remember, lower Loan To Value is better.”
Circling back to Strephen's question, Martin explained that if some of his savings could be used to help him get over a Loan To Value boundary that may help cut the cost of his mortgage and would "more than pay itself back".
The Money Saving Exper then told viewers that the first thing you need to do when hunting for a mortgage deal is to find your lender's cheapest deal.
Martin says this is what is known as a "product transfer" and previously they used to be "poor" however they have gotten "much better in recent years".
He added: "Because existing lenders can forego affordability checks, many have lower fees and they’re becoming a lot more competitive towards their existing customers.
“Crucially, many lenders will let existing customers lock in deals three to six months ahead, and I call that an insurance deal,.
"so let’s say you can get a deal now, you lock it in, you may have to pay a few hundred quid to do so, and if rates get worse you’ve locked in a cheap deal and if rates get better, you can lose the few hundred quid and move to a new cheaper deal because you can cancel it.”
Martin confirmed with the mortgage expert on the show that these steps were primarily for existing members only and those who were new would find this tactic a lot tougher.
