Remortgage tips

When the Bank of England’s base rate is falling, many homeowners with fixed-rate mortgages may be tempted to remortgage and switch over to a tracker mortgage with a lower interest rate.

If you’re one of them, it’s vital you do the maths, think ahead - and remember why you chose a fixed-rate mortgage in the first place. That’s not to say you should definitely stick with your fixed rate, but you certainly should think it through carefully.

Do the maths

How much would it cost you to remortgage? If your current contract mentions an ‘Early Repayment Charge‘ (ERC), that means you’ll have to pay your mortgage lender a certain amount if you exit your mortgage deal before a pre-defined time. And be aware that the tracker mortgage you’re looking at could well come with an arrangement fee. Depending on the size of these two figures, you could actually end up paying more than you’d save if you did remortgage.

Think ahead

What do you think lies ahead for the economy? Interest rates might be dropping now, but no-one anyone knows where they’ll be in a year. If they suddenly shot ‘through the roof’, the consequences for people with tracker mortgages could be severe - but people with fixed-rate mortgages would see no change at all to their monthly payments.

Of course, many people with tracker mortgages may be planning to keep a close eye on the base rate and switch to a fixed-rate mortgage as soon as it starts to rise, but is this really a safe strategy? If the base rate (and therefore the cost of their tracker mortgage) jumps several points overnight, they may well find that the interest charged on all new fixed-rate deals jumps just as much - and just as suddenly! In other words, the only fixed-rate deals available could be a lot more expensive than the one they’re on right now.

Remember why…

So remember why you chose a fixed-rate mortgage to begin with. Whatever happens to the economy, a fixed rate means your monthly mortgage payments won’t change.

After all, the base rate can only sink to zero - but there is (in theory, at least) no upper limit at all. Seeing your monthly mortgage payments drop by, say, £200, might be enjoyable, but what would happen to your budget if they suddenly rose by £200?

If you’re not certain you could afford that, then maybe you should stick with your fixed-rate mortgage. You won’t get to celebrate when the base rate goes down, but you won’t need to worry about it going up either - and when the economy’s going through an unpredictable period, isn’t it good to have a bit of stability in your finances?

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