Re-mortgaging, or rate-switching – and the perils of being a perfectionist
This week I changed my mortgage deal. It’s been on my mind for a while, and with the uncertain economy increasing my fears about job security, it finally got pushed to the top of my to-do-list. I wanted to make sure I could re-mortgage while still employed.
I have a repayment mortgage, originally taken out as a 5 year fixed rate, but which has long since reverted to 4%, my lender’s standard variable rate. With interest rates so low – the base rate has been at 0.5% for 7 years now since March 2009 – I’ve been paying over the odds for some time.
I began by ringing my current lender to find out what they would offer me. I like fixed rates, as I can then forget about my mortgage for a few years, knowing exactly what I’ll be paying. Interest rates are so low already that I’m not worried about being tied into a fixed rate that might suddenly look expensive in a year or so. This narrowed my options, and I could pick between 2 and 5 year fixed rate deals, each with or without fees. I have a small mortgage, so for me paying a large fee to switch to a better deal doesn’t make much sense, especially if I pick a 2 year deal and will be looking to do the same in a couple of years.
My first discovery was that switching to a better rate with my current lender is not actually considered a re-mortgage at all, but exactly that – just a rate-switch. This means there’s no approval process to go through, as they already approved lending me the money first time around. It’s actually incredibly easy and quick to move to a better rate online. Worth bearing in mind should you find yourself suddenly out of work, and think you have no options with regards to lowering your mortgage – your existing lender might still actually have a better deal for you.
They don’t necessarily cover all lenders in the market, so it could also be worth ringing a mortgage broker to double check your options, especially if you need advice. My existing lender and the comparison sites also gave me the option of getting mortgage advice, or of self-selecting my mortgage deal. I opted for execution-only.
It took me just a few minutes to get some comparison rates. You choose between a re-mortgage, house purchase, first time buyer, or buy to let. Enter the property value, the amount you’d like to borrow, over what term, and whether you’d like a repayment (capital and interest) or interest-only mortgage. You then get your list of available mortgages showing the amount of monthly payments, and can then refine further by type of mortgage – e.g. fixed, tracker, discounted variable, standard variable or capped – and by the length of any initial period, from 2 years upwards.
My second discovery – a lower interest rate reduced my monthly payments by much less than I expected! I had visions of reducing my mortgage payments by £100-£200 a month, but sadly this is not the case!
It was about this time that my perfectionist streak started to take over. I sorted all my results by the total cost of the mortgage so that I could weed out those with high upfront fees, and called First Direct which was coming out near the top to see if they’d offer me a better rate as I have a bank account with them. They didn’t. It seems they offer loyalty rates only to existing mortgage customers, not bank account customers.
I was frustrated as I’d been kept on hold a long time, and I was now spending too long poring over the different options. The problem was I knew I could get a better deal if I moved lenders, and the point of the exercise was to reduce our mortgage payments as much as possible. However, the amounts involved weren’t hugely different, and I couldn’t face going through the application process for a new mortgage. I’d have to give full details of income and outgoings to a new lender, and then wait to see if the application was approved, followed probably by some telephone confirmation before it all went through. Compare this to my existing lender, who was offering a simple switch.
You’ve probably realised that I opted to stay with my current lender. I’ve picked the 2 year fixed rate, as the amount I’ll pay over the next 2 years is comparable to the best 5 year fixed rates I can get elsewhere (I couldn’t be bothered to switch lenders every 2 years, so would only move elsewhere for a longer-term fixed rate). The time it actually took to move to the new rate was about 5 minutes – I just requested it online, my paperwork arrived a couple of days later, and it just needs signing and returning. It really has been the simplest process. I can re-assess in a couple of years when the fixed rate comes to an end.
The downside of paying too much attention to detail and being a perfectionist is that it leads me to want to check every available option to be sure I’m picking the best one. This takes a lot of time and effort with frequent agonising over which option is right, when actually several options might be very similar and all are just fine. It can make life much more difficult. Compare to checking for a better deal, finding one, and being happy that it’s saving me money.
I’m a bit uncomfortable knowing that there are better deals on the market, but in this instance I’m happy to know that the new deal will be less than I’m currently paying, and not a million miles from the best deal on the market.
Image: Pixabay: StockSnap