Switching to lower interest rate mortgage not always the best deal

| April 25, 2007 | 0 Comments
Switching to lower interest rate mortgage not always the best deal

At a time when interest rates seem to keep rising and many mortgage holders are looking for either a fixed-rate deal or at the very least the best rate they can find, comparison service Moneyfacts.co.uk has found that jumping from one’s current mortgage to one that seemingly has a lower rate might not save the mortgage holder all that much money. In fact, the service says, sticking with a standard variable rate mortgage might be the best deal of all in the long term.

While a spokeswoman for Moneyfacts says that shopping for the best deal is always a good idea, it is also necessary to look at all the costs involved in switching deals, especially when one is in the final years of their loan. Using as an example of a loan with a balance of £12,000 left to pay, the site says that paying that amount off at a standard variable rate of 7.06 percent would mean £14,082 out of pocket for the holder of the mortgage. Changing over to a mortgage with an interest rate of 5.24 percent and a fee of £399 would cost the customer £13,869.60. While that is, indeed a smaller total amount, the change would only save the mortgage holder £3.54 per month. In addition, if there is an exit fee involved in the switch that savings could be all but wiped out.

Also affecting the choice to go to a new deal or stay with the old mortgage is fact that almost half of the mortgage providers in the UK will lend less than £15,000 to those switching mortgages and that many of them do not offer the full spectrum of deals. All of this taken together means that often, the mortgage holder is best off staying with their original deal.

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