My mortgage: should I stick with my SVR?

9 January2010

Remortgaging, as the CML (Council of Mortgage Lenders) recently stated, has dropped to decade-low levels - as many homeowners see `little incentive` in remortgaging when their fixed-rate period ends and they revert to the bank`s SVR (Standard Variable Rate).

However, no-one can accurately predict what the future holds for the mortgage market - so, if you are in this situation, you may be wondering whether you should stick with your `new` SVR mortgage, or move to a new fixed-rate deal.

For example...

Let`s assume your fixed-rate mortgage - which was charging you 6% interest - has recently come to an end, and you have been placed onto an SVR deal, charging you 4%. What should you do?

Here, we will weigh up some of the advantages and disadvantages of sticking with your SVR or finding a new fixed-rate mortgage.

Sticking with your SVR: advantages

1. You`re paying less than you were when you were on your old fixed-rate deal.

2. You`re probably also paying less than you would on a new fixed-rate mortgage.

Because your payments on your SVR deal are lower, you will be left with `spare` money each month (compared with what you used to pay), which could, for example, be put into savings. Then, when it comes round to choosing a new mortgage, if your new deal is more expensive than you had hoped for, you will at least have some savings to help you afford your repayments.

Sticking with your SVR: disadvantages

Although the Bank of England`s base rate is low at the moment:

1. it will increase at some point in the future - so if you are thinking of sticking with your SVR, this is definitely something you should bear in mind, as any increase in the base rate is likely to mean an increase in the cost of your mortgage.

2. the cost of your mortgage could actually rise before the base rate does. Banks and building societies can change the interest rates on the SVR products they offer - in other words, SVR mortgages don`t have to follow the base rate.

So it`s a question of whether you would like the security of a fixed-rate mortgage (knowing exactly how much you are required to pay each month), or whether you want to `risk` staying on an SVR, hoping the rate won`t rise too much or too soon.

Moving to a new fixed rate: advantages

1. By moving to a new fixed-rate mortgage now, you may be able to find a better deal than you would if you looked for one a year or two from now.

2. House prices, as they stand, are slightly higher than they were a few months ago - and many experts expect them to drop further next year. In two years` time, your house price may have fallen - which means that if you were to remortgage then, you might need a higher LTV (loan-to-value) mortgage, which would probably be more expensive.

Moving to a new fixed rate: disadvantages

1. Moving to a new fixed-rate mortgage now will probably be more expensive than staying on your SVR - many of today`s fixed-rate mortgages are charging around 5.5%.

2. When taking out a new mortgage, you may be required to pay an arrangement fee.

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Tags: mortgage, remortgage, mortgage rates, fixed rate mortgage, variable rate mortgage

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