The Little-Known Mortgage Trick That Could Save You Thousands of Dollars

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Homeowners could save thousands of pounds by using a little-known mortgage trick.

And the timing couldn’t be better as borrowers brace for the Bank of England to raise interest rates to a 13-year high tomorrow.

Around 1.5 million fixed-rate home loans are due to expire this year, according to banking body UK Finance.

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Mortgage renewals: Around 1.5million fixed-rate home loans are due to expire this year, according to banking trade body UK Finance

With rising interest rates, borrowers face a dramatic increase in their monthly repayments. Yet, there is a way to mitigate these extra expenses – you just have to act fast.

Many borrowers don’t realize that lenders often allow you to lock in a new rate up to six months before the end of your current contract.

Instead, they wait until their current loan has run its course before signing up for a new offer.

But with top rates disappearing almost daily and interest rates set to skyrocket, this could be a costly mistake.

In fact, Money Mail figures show that booking a new fare early could save the average owner nearly £500 a year, or more than £2,000 over the course of a typical five-year fixed contract.

A fixed agreement allows borrowers to lock in their rate for a period of two, three, five or even ten years. When it ends, they have to choose a new contract to avoid paying their lender’s “standard variable rate”, which is usually much more expensive.

If you change before the end of your term, it usually triggers a hefty penalty known as a prepayment charge.

But most lenders offer a loophole that allows borrowers to apply for a new deal up to six months before their term expires, which could prove invaluable in today’s market.

David Hollingworth of broker London & Country says: “With rates going up, you could get a rate that just won’t be available in a month, let alone six.”

The Bank of England has now raised the base rate four times since December, from a record low of 0.1% to 1% last month.

Tomorrow could bring further pain with rates expected to jump to 1.25% or even more.

Experts also predict that interest rates could hit 2% before the end of the year as the Bank scrambles to contain soaring inflation.

As a result, cheap mortgage offers are quickly disappearing. All trades below 1% have disappeared since last year.

Many borrowers don't realize that lenders often allow you to lock in a new rate up to six months before the end of your current contract.

Many borrowers don’t realize that lenders often allow you to lock in a new rate up to six months before the end of your current contract.

According to data analysts Moneyfacts, the average two-year fixed-rate deal rose above 3% for the first time in more than seven years.

And a typical five-year mortgage rose 0.16 percentage points in just one month from April to May.

Money Mail analysis shows the average household could save £475 in just one year by agreeing a new mortgage deal in advance, a saving of £2,375 over five years. This is based on a typical outstanding home loan of £161,774.

If the five-year average fixed rate were to rise another 0.5 percentage points by the end of 2022, borrowers would pay 3.67%, up from 3.17% currently.

With the above loan amount, it would cost owners on a five-year contract an additional £39.59 per month – or £475 per year.

While many landlords prefer to set longer-term rates, experts are hesitant to recommend fixed ten-year deals.

Jonathan Harris, managing director of brokerage Forensic Property Finance, said: “There has been increased interest in ten year fixes because they are so competitively priced. But once people realize the prepayment charges involved, they often change their minds.

Anyone who has suffered financial setbacks may find it easier to request a product transfer from their existing lender.

These are usually available up to three months before your transaction is complete and can be quicker to arrange as the bank already knows your details.

Mr Harris says: ‘While you can arrange a product transfer without proof of income, you cannot remortgage without it – which is why the former works better for some.’

For some borrowers, who may be planning to move soon, a variable rate flexible deal may work even better as there are no early exit fees.

Rosie Fish, of online mortgage company Habito, says: “If you have six months or less left on your current contract, now is the time to anticipate any further rate hikes.”

The cheapest offers on the market are withdrawn at short notice, so make sure your documents are in order to avoid delays when submitting your application.

A mortgage broker can help you find the right deal at the right time, as well as access deals that aren’t directly available to homeowners.

London & Country, Habito and Trussle are all free. The unbiased.co.uk website can also put you in touch with brokers in your area.

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