Save Up To £6,000 A Year On Your Mortgage By Doing Nothing

Fancy saving £6,000 a year on your mortgage for the next two years? Then you need to speak to your broker if you are coming to the end of a deal, because you might be better off delaying getting into another one.

Fixed rates are falling, but only if you have more than 25 per cent of your home’s value in equity, according to research from statisticians Moneyfacts.

Don’t Just Ditch The Standard Variable Rate

But some lucky borrowers who own just a tenth of their property, and have mortgages with Nationwide – providing it was taken out before April 29, 2009 – Lloyds TSB Scotland, Cheltenham & Gloucester, Derbyshire Building Society and Cheshire Building Society, can save themselves £6,000 by not signing up to a new fixed rate deal for now.

All of these lenders have a standard variable rate (SVR) of 2.5 per cent. Since the average two-year fixed rate for anyone with just 10 per cent equity in their home is at 6.48 per cent, the difference in payments is £6,000 a year – easily enough to make you sit on your hands for now.

Here’s The Maths

Here is how it works out. On a loan of £150,000, you would be paying interest of £9,720 a year – £810 a month. On a 2.5 per cent rate, you would be paying £3,750 a year in interest, or £312.50 a month. The saving is a whopping £497.50 a month – nearly £6,000 a year.

For your monthly payments to get up to £810 a month, you would need the SVR to rise by just under 4 per cent. Lenders usually follow the increase in the Bank of England base rate, so starting at 2.5 per cent, even if the Bank of England Monetary Policy Committee started raising it at its usual level of 0.25 of a percentage point from next month, it would take 16 months to hit 6.48 per cent. That is until June 2011.

Of course, if things went very badly and the rate went up at 0.5 of a percentage point each month, you would hit 6.5 per cent within eight months. But you would still have managed to save a considerable sum over that period – £1.672.50 to be exact in interest, and that is including the effect of the 0.5 percentage point rise each month.

So if you are coming off a deal with one of these lenders, and you can afford to be flexible with your monthly payments, speak to a broker to check that sticking with your lender’s SVR is the right thing to do. Then simply keep a regular check on mortgage rates to watch for any changes.

Get A Tracker Deal To Keep Your Lender In Check

Remember though, lenders can increase their SVRs at any time. So if you want to be certain about any rises following the base rate, ask your broker about getting a tracker rate, as they cannot just raise rates on these deals.

This is also the best thing you can do if your lender has a higher SVR than 2.5 per cent – and plenty do. However, you may struggle to get a decent deal if you only have 10 per cent equity, so check with your broker for help.

However, if you have at least 25 per cent equity in your home, you can get some cracking deals on trackers right now. Santander has just reduced the rates on its three-year tracker mortgages – and two deals are fees free, so it costs you nothing to remortgage.

Santander’s Tasty Tracker

Santander is offering a tasty tracker at 2.59 per cent if you pay £995 for the privilege of remortgaging to it. The catch is you need to own at least 30 per cent of your property.

If you have 25 per cent equity, you can get 3.14 per cent on the equivalent loan, although with this you have no fee to pay to remortgage as it is offering its Remortgage Solution for this deal.

If you are buying a property rather than remortgaging, you can get a slightly lower rate at 3.09 per cent, again fees free, but again you have to have 25 per cent of the value as a deposit.

One tracker rate is available with First Direct at 2.39 per cent. The main catch here is you need to own at least 35 per cent of your property, so it is certainly not open to all. There is a £999 arrangement fee to pay too.

Fix If You Can’t Afford Uncertainty

If you need certainty of payments, then even if you own just 10 per cent of your property, you have no choice but to get a fixed rate.

Bearing in mind the average fixed rate is 6.48 per cent on a £150,000 loan, the highest level since December 2008, you can still do a lot better than that. Nationwide is offering 5.98 per cent fixed for two years for those with just 10 per cent equity, and the reservation fee is £396, with a booking fee on top of £99.

Once again, if you own more of your property, the average fixed rate on a £150,000 loan is lower at 4.27 per cent, the lowest since July last year.

Even so, there are plenty of deals for less than that. First Direct for example is offering 3.29 per cent fixed for two years if you own at least a quarter of your property. The booking fee is £499, and the arrangement fee is the same again.

Speak to a broker now to get the best deal for you.