Recent mortgage Q&A
Why you should consider loyalty mortgages when remortgaging your house
There are very few areas these days where you get a better deal for remaining with your current provider. From mobile phones to power suppliers, it rarely pays to stick with the same one from year to year with significant savings being available if you shop around and switch, or at least attempt to switch, providers on a regular basis.
Why the mortgage market is different
The mortgage market is somewhat different to other markets because of the way funding is provided to lenders for them to be able to provide mortgages. There are costs associated with processing applications and each time a lender takes on a new customer they are also taking on a new risk. In order to help to reduce the amount of risk they take on, a number of lenders have begun to offer loyalty mortgages to their existing customers. These have been developed on the basis of lenders being able to retain customers who make their repayments on time and who represent a known risk to the lender.
What benefits do loyalty mortgages provide to the customer?
There are a number of benefits that are provided by loyalty mortgages. The first thing to note is that the deals you can get with loyalty mortgages will almost always beat anything that is currently available on the open market. Some will provide you with decreased application fees, with discounts of up to half on some deals. This can be a significant saving before you even start looking at interest rates. Many loyalty mortgages will also provide you with special fixed rate deals that usually come in just under the rates available to everyone. The combination of the discounted application fees and the lower interest rate is enough to make these deals very attractive.
Are there any disadvantages to loyalty mortgages?
The main disadvantage of loyalty mortgages in the current economic climate is that they tend to offer a short term fixed rate mortgage over either two or three years. With interest rates set to start rising over the next year or so you could find yourself facing an unattractive mortgage market when your fixed rate period finishes.
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Planning ahead can provide you with a better idea for whether a loyalty mortgage is for you or not. If you know that you will not be in a position to make any significant overpayments over the next ten years, you could well be better off going for a much longer term deal that is not a loyalty mortgage. If you know that you have changing financial circumstances coming that will leave you in a position to make a significant overpayment, or you know that you will be moving house sometime over the next 5 years, it may be that a low interest rate loyalty mortgage will be ideal. In order to make sure you have all of the facts you need to help you decide a mortgage broker will be able to assist you.
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