Many homeowners are expecting their soaring mortgage bills to fall in line with cuts in the Bank of England base rate. However brokers are warning borrowers, who have variable rate mortgages to be cautious, as there are fundamental differences between discount and tracker mortgages.
As the name implies, tracker rate mortgages track the base rate for a given period. They are totally transparent as they follow the movement of the base rate and the mortgage company guarantees the differential between their rate and the base rate.
On the other hand, discount mortgages follow the standard variable rate of the building society or individual bank. Lenders can change their rate at any time, even if the base rate has been frozen, so you are completely at their mercy. Lenders are searching for ways to enhance their margins in order to offset the effects of the economic downturn.
Standard Life for instance have actually bucked the trend and raised their SVR by 0.15% to 7.46%, in spite of the Bank of England holding interest rates at 5.75%. Brokers warned borrowers to be cautious as other lenders may follow the lead of Standard Life.
Andrew Montlake of brokers Cobalt Capital confirmed this view by saying that lenders would be slow to lower their SVRs when the base rate falls and even then they would not pass on the full reduction to borrowers. The best advice for those people whose mortgage is linked to the SVR of their lender is to consider remortgaging.
Melanie Bien of Savills Private Finance maintains that a much better option is a base rate tracker, as opposed to a discounted deal, as it offers far more transparency. You know exactly where you stand, as a base rate reduction of a quarter point is reflected by a fall of the same amount in your mortgage rate the following month. However lenders are continually updating their tracker rates. New product ranges will then have their guaranteed differential reduced in line with their findings. Mr Montlake says that if the market follows the expected trend, those borrowers who have tracker deals will be the happiest.
Maybe you have decided to remortgage. but how do you go about it?
Applying for a new mortgage on your existing property is much the same as applying for a loan to fund a house purchase. You need to supply information about your income and outgoings, and the property on which the mortgage will be secured. The lender will want to undertake a valuation although, in some cases, it will do this from outside the property.
On the legal side, the lender will want a conveyancer to undertake a local authority search and a search to prove you own the title to the property. As there is no sale involved, there are no contracts to prepare, so the process should cost less than a house purchase.
To attract customers, many lenders offer a remortgage package. This usually offers free legal work or a contribution towards legal fees, a free valuation and a reduced administration fee. Where no remortgage package is available, you need to bear in mind that the costs associated will make a dent in your potential savings.
Author Resource:-
Kings College Brokers is a specialist in Mortgages, offering fantastic deals and truly impressive information surrounding mortgages and remortgages. Our sister site Brokers Online offers cutting edge articles and information about Mortgages and other financial products.
![[Valid RSS feed]](http://www.freebie-articles.com/images/rss.gif "XML Feed For RSS")
Category Rss Feed
Print This Article
Add To Favorites