#AskAdam – Question 3 – Mortgage Product

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Q.

Hi Adam, I love your blog and I have already learnt so much, so thank you so much.   I currently am coming to the end of my fixed period of my mortgage and have received a letter from my bank saying that I will be moving onto their standard rate in February.  I’m thinking about selling next year and buying next year and I’m not sure whether I should sign up for another product if I’m thinking of moving.  What should I do? Any help would be great as I feel a bit confused on what I should do.  Thank you in advance and keep up the great work on the blog.  Thanks, Tammy-Lee

A.

Hi Tammy-Lee,

Thanks for the kind words and the question.

As you’re probably aware, fixed rate products usually come with an exit fee (early repayment charge). The standard variable rate is usually much more expensive than fixed rates but do not have any exit fees. Pros and cons both ways.

If you go into another fixed rate and decide you want to move then you will have to pay that exit charge, if you need a new mortgage. This could be several thousands of pounds.

There are 2 good options you could take:

Porting

With this option you can take your fixed rate with you when you move.

This would mean you could get a new fixed rate now, not have to worry about the standard variable rate, and then when you decide that you’re going to move, you take your fixed rate as well. 

You do need to make sure that the mortgage company you’re with allow you to port your mortgage, if they don’t then you’ll need to find an alternative mortgage company. 

The bit you need to be careful of is if you need a larger mortgage. If you do you’ll need to ask for additional borrowing (further advance) from that mortgage company who will then reassess your affordability before agreeing to give you the additional borrowing.

The mortgage company can decline to give you the additional money though. If they aren’t prepared to lend you the required amount and another mortgage company will, you would have to pay the exit fees to switch. So it does lock you in to that company. 

If you don’t need any additional borrowing then porting should be quite easy. 

Get A Tracker Rate

A tracker is a product similar to a fixed, but instead of the full rate being fixed a part will be and the other part will follow the Bank of England base rate. 

You would have a set rate plus the Bank of England base rate. You could have a set rate of 1.20% plus Bank of England base rate.  If the base rate is 0.25% today, your interest rate would be 1.20% + 0.25% = 1.45%.

If the base rate increases to 0.50% then your 1.45% would change to 1.20% + 0.50% = 1.70%.

The same thing works if it goes down to 0.10% your 1.45% becomes 1.20% + 0.10% = 1.30%.

Essentially, there’s a part that could go up or down.

The benefit is that these products often don’t have exit fees, which means when you move you can secure a completely new mortgage with another mortgage company and not pay any exit fees.  

These products are cheaper than the standard variable rate, with flexibility. However, large changes to the base rate could make a big change to your monthly payments. The base rate doesn’t usually change too often but you need to be aware of it.

Whichever option you take make sure to shop around for the best deal! Talk to a mortgage broker who is whole of market, they should search through all of the mortgage companies to find you the cheapest one to match your needs. 

When you find a product use this calculator to see how much your monthly payments will be.

If you have a question that you would like my help with please don’t hesitate to get in touch! Use #AskAdam and send me your question below.

 

 

If you have a question that you would like my help with please don't hesitate to get in touch! Use #AskAdam and send me your question below.