Being a 'Rate Tart'

osaddict

Guys,

I'm on the brink of signing up for my first ever mortgage, I'm going for a 2 year fix, I know people may suggest others but for my situation I'm almost certainly going for this.

My question is what happens at the end of the fix... it seems I have two choices, both of which seem a bit rubbish, unless I'm missing something:

Choice 1:
Stick with the same mortgage, it'll switch to a higher rate, so I'll pay more per month.

Choice 2:
When near the end of hte deal I can look for another mortgage which woudl be cheaper than the results at the end of choice 1, however, to swtich to it I'd have to:
a. Pay an 'exit fee' for the first Mortgage (perhaps £500?)
b. Pay an arrangement fee for the new mortgage (perhaps 1k).
c. Potentially pay a broker if I use one (£500)

So, if you were a 'rate tart' and kept switching does that say that you'll be paying around 2k (okay perhaps a bit less or so) every time you switch? - But the alternative is paying more per month on the existing one.

Have I missed something? - It's basically a case of when the 2 year fix is up you're due immediate lump sum costs or higher monthly costs?

Thanks!

kingstreet

Your options;-

go on to the "follow-on" rate, probably the lender's standard variable rate

ask your current lender what customer retention products it has for you to choose from

consider remortgaging to a new lender, taking into account the costs of transferring versus the benefit of the rate being offered.

Ensure your first deal has low/no discharge fee to allow you to move to an new lender more cheaply when it ends.

AFK_Matrix

Well with option 1 it will all depend what the bank of england base rate is doing as you will go onto your lenders SVR rate. For me at the moment if my fixed deal was to end today would be I would actually be saving money and paying less as the rate is lower than my fixed deal.

As for option 2 then the exit fee will depend on which lender you go with I believe. You also would not necessarily pay for an arrangement fee, not all lenders charge this. You can also include this fee into the mortgage if you wish. Getting a broker is upto you but it can be a good idea to have one and not all borkers charge a fee.

So yes you could have to shell out a lot of money switching mortgages but not necessarily. I am sure the mortgage brokers here will come on with more advice though.

amnblog

The difference between standard variable rates (3.99% to 5.99%), and fixed rates like you suggest (2%) is wide.


This works in favour of the 'rate tart'.


The main cost for a new rate after 2 years is the application fee for the new product which is typically £999. Expensive if you are borrowing £50,000, but not £500,000.


Even switching to a new product with your existing lender will usually incur a similar fee.


Therefore the only sensible alternatives to being a rate tart are:


Sit on standard variable rate and pay over the odds
Take a longer term rate and pay more today to potentially save more later

osaddict

I'm looking at £203k mortgage, at the moment I'm thinking 2 year fix with Santander, which is 1.94 a month, £669.50. After this period it's 4.75% per month - £976.50. So, £307.50 more.

It looks like a fee of £225 to move and then if you assume a fee of £1k to get a new mortgage. So, £1.2k upfront or £307 per month, so, with 4 months of payments at the new rate I've covered the 1.2k already. Assuming I found a new deal for say 2 years that was better than the 4.75 (I'd hope so!), then 'rate tart' would be the answer.

Am I correct in this understanding?

amnblog

You are pretty much there.


Santander are little bit naughty going to 4.74% on SVR.


You can better this rate and still go to an SVR of only 3.99% with an alternate lender.

osaddict

hmm, that's interesting, I wonder why my broker didn't suggest that. I know he looked at some from Platform (CoOp) but I believe their overpayment terms were max of 1k a month as opposed to 10% of the loan.

amnblog

Perhaps you don't fit criteria with other lenders, or rates have come in since the original source.

osaddict

Well, it was 8am this morning! Criteria, I'd be surprised at - I think I'm the sort of criteria they all look for! - 30% LTV, no debts etc!

Oh well!

amnblog

Ask your broker to check again.

Thrugelmir

osaddict wrote: »

Well, it was 8am this morning! Criteria, I'd be surprised at - I think I'm the sort of criteria they all look for! - 30% LTV, no debts etc!

But a £203k debt ...............

What's your annual household income?