This is an important warning for anyone with a mortgage, or who is about to get one.
Home loan interest rates have dropped in the last month, but pundits predict the UK base rate will rise early next year – so it’s crucial to check now whether your deal is right and if you can save money.
For most mortgage holders it’s their single biggest expenditure, which means cutting the rate can be your single biggest saving.
Just a 1 per cent point cut in interest on a £150,000 repayment mortgage will typically slash your outlay by £85 month.
I’d always start my search by using a comparison site that includes both broker deals and direct-only deals to get an idea of the type of thing you’re looking for.
These include www.google.co.uk mortgages www. moneysupermarket.com mortgages and my own www. mse.me/mortgagebestbuys – in that I’ve added fixed mort – gages to combat one of my pet peeves about mortgage comparisons.
While they usually list deals by the interest rate, the fees can make a massive difference, so we’ve got a ‘total cost comparison’, showing the total fees plus interest you’ll pay over the fix or discount period.
The rate you get depends on how much of your house’s value you’re borrowing.
Your loan-to-value (LTV) describes how much of the house’s value you’re borrowing, eg a £10,000 deposit on a £100,000 home is 90 per cent LTV.
A lower LTV means a better deal. For those looking to remortgage (which means getting a new deal for the same house) it’s important to understand it is your house’s value at the point you get the new mortgage that counts.
So if your house has increased in value then it’s likely your LTV has improved.
If it’s dropped, it’s got worse. Most important to understand is that there are key LTV thresholds of 90 per cent, 75 per cent and 60 per cent where the rates get far cheaper.
For example the cheapest two-year fix for someone with a nine per cent deposit is 4.79 per cent and yet with a 10 per cent deposit it drops to 3.54 per cent – that’s £104.47 a month less on a £150,000 mortgage.
So it’s worth pushing hard if you can to make the next threshold.