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MONEY COMMENT
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Over the years, I've been wily with my mortgage and the interest rates I've paid. Although my loan is with a large and very uncompetitive lender (see Finding A Cheaper Mortgage), I've never paid the standard variable rate for more than a few weeks (this is the normal rate charged to borrowers who aren't on a fixed, discounted or other special-rate deal). Although I've stuck with the same lender for a little over ten years, I've always shopped around. I check to see what the best rates are and challenge my lender to keep my business by giving me a better deal. This works every time: I've had a discount, then a fix, another discount, then a ten-year fix at 6.25%. The last was a great deal for about three years until 2001, when the Bank of England cut base rates seven times from 6% to 4%, where they've remained for fifteen months. In December 2001, I decided to bite the bullet, pay the redemption penalty, and switch to a lower rate, saving 1.5% a year. I had to pay a hefty redemption penalty - ten months' interest - but I negotiated a discount of £500 by agreeing to switch to one of my lender's own loans instead of moving my mortgage elsewhere. I worked out that my lower monthly payment meant it would take me less than three years to earn back the penalty. My latest mortgage is a tracker at base rate plus 0.75% (which means that it moves up and down exactly with the base rate). It's also more flexible and allows to me overpay, plus interest is calculated daily instead of annually. Even better, there are no redemption penalties whatsoever, so I can switch to another deal or move to another lender whenever I choose. With interest rates at a 40-year low, I'm undecided whether to: 1. Fix my payments now (the best three-year deals are under 4%, with no tie-in after the fix ends) If I were at all uncertain about my future ability to meet my payments, I'd probably plump for a fix. However, even if the base rate triples, I'd still be able to cope because my mortgage is fairly small, so I won't tie myself in by fixing. Many of the lowest fixed and discounted deals carry high upfront fees or steep redemption penalties. Also, some require me to buy the lender's insurance policies, which are universally over-priced, so I've decided to give these a miss. I'm torn between the cheapest tracker and a current account mortgage. Either way, I'll save money and, if interest rates do fall, I'll benefit from lower payments. Whatever you plan to do with your mortgage and home, if you're paying the standard variable rate and can switch without big penalties, act today. You're in a strong negotiating position, so shop around, challenge your lender and start saving now!
2. Change to a discounted variable rate (well under 4% with no tie-in after three years)
3. Switch to a cheaper tracker (several charge less than the base rate)
4. Move to a current account or offset mortgage and use my income and savings to reduce my mortgage interest bill (very flexible but higher interest rates than 1 and 2).