OTHER REASONS

It’s not just about saving money. It’s also about getting a mortgage which is

right for you and your situation. So here are some more reasons to think about

remortgaging.

It’s time to pack your bags

Maybe you’re moving up the property ladder and need to borrow more

money. Some mortgages are portable – that is you can transfer them to a new

property. But if you also need to borrow more money at the same time to buy a

more expensive property, it could make sense to take out a new mortgage for

the whole lot.

Your mortgage doesn’t fit any more

You’ve had a pay rise or maybe you’ve inherited some money. You want to

make extra payments to your mortgage but your current deal won’t let you. Or

perhaps you need to be able to miss a payment. Changing jobs, going back into

education, going travelling – whatever the reason, there are mortgages which will

let you take payment holidays.

Maybe you’ve been tempted by new and whizzy mortgages which combine

your savings or current accounts with your mortgage. More about those later.

Whatever flexibility you want in a mortgage, chances are it’s out there. But

remember products don’t offer these twiddly bits for free. Expect to pay for

flexible features with a slightly higher interest rate. So don’t be tempted to go for

whistles and bells unless you will actually use them.

It doesn’t do what it said on the tin

If you are one of the millions of people in the UK who have been told to

expect a shortfall on their endowment then you need to act now. You will still be

responsible for paying off your mortgage on the due date, even if your investment

has performed disastrously. It’s your problem, not your lender’s.

If you have an endowment mortgage then your monthly payment does

two things. Some of the money goes to your lender to cover the interest on

your loan. The rest is paid to an insurance company which invests it on your

behalf. What you are not doing is paying off any of the capital you owe. So

if you borrow £100,000 on an ‘interest-only’ basis, you will still owe the bank

£100,000 25 years later. If you’re lucky the money you have invested will have

grown sufficiently for you to use it to pay off some or all of the debt.

But in recent years most insurance companies have cut the bonuses they

pay investors with endowment policies, which means the money invested is

unlikely to cover the mortgage debt, leaving policyholders with a shortfall.

If you are in this position, it may make sense to convert some or all of your

loan to a repayment mortgage to make sure that you’ll be able to clear the debt.

This will cost more every month because as well as covering the interest you

owe, you will also be paying off some of the capital. You then either cash in your

endowment and use the lump sum to pay off some of your mortgage or keep it

going as a separate investment.

Deciding what to do with your endowment can be complicated – especially if

you are relying on the life insurance provided by the policy – and you might need

to take some specialist financial advice before deciding what to do.

Many people with ISA or pension mortgages face the same uncertain future.

Bad investment returns could mean they also struggle to repay their loans. Some

estimates suggest there could be another million people who have interest-only

mortgages but don’t have even a badly-performing investment to rely on. Some

people plan to sell their house to pay the debt, assuming the property value will

have grown sufficiently in the meantime to leave them a tidy surplus. But that’s

not guaranteed – and in every case it does make sense to consider converting

at least a portion of your loan to a repayment basis when you can.

You’ve got other debts elsewhere which charge much higher

interest rates and you want to wrap all your debts into one

If you have a lot of outstanding debts it might make sense to add them to

your home loan. After all, the interest rate you pay on your mortgage is probably

half or even a third of what you pay on your other debts.

But this is not something to do lightly. Remember you are securing this

money on your home – so if at some point in the future you can’t make your

repayments, your house is at risk. And, of course, if you borrow more and use

the cash to pay off your credit card or bank loan, you will pay be paying interest

on that extra money for as long as you have the mortgage.

Thinks carefully about adding non-housing debts

to a mortgage, whether it’s for a

new kitchen, a holiday or to consolidate

existing borrowing. The problem isn’t

that it is wrong per se, in fact often it’s

a good move, but the issue is many

people see it as a no-brainer solution.

Borrowing at 10% over 5 years is

cheaper than 5% over 20 years.

The amount of interest you pay is a

combination of the rate and the length

of the borrowing. Borrow on your

mortgage and your overall interest you

pay will usually substantially increase.

There are times when this could be a

necessary evil, perhaps to get you out

of a hole, but it’s usually better to pay a

slightly higher rate with the flexibility to

pay off the debt much more quickly.

The one exception is if you’re using

this strategy in conjunction with a

mortgage which allows overpayments

(more later) so you are actually paying

the debts off in much less time.