For any contractor with a mortgage, it makes good sense to check periodically that you are on the best possible deal. Too many homeowners are content to stay on a mortgage deal that may no longer represent the best value or, worse, they allow an existing deal to expire and transfer automatically on to the lender’s standard variable rate.
Both of these situations potentially have the same end result: you end up paying more to your lender each month than you need to. And remember, that extra isn’t paying off your mortgage any quicker; it’s extra interest that’s going straight towards the lender’s profits.
The solution to this has two elements. First, always know what deal (or “product”) your mortgage is on at any given time. That’s easier than it sounds: your annual mortgage statement should provide information about the interest rate you’re being charged, the type of product (for example, a fixed rate or tracker mortgage) and, crucially, when your current mortgage deal is due to expire. This last point is important, as it indicates when your mortgage will revert to the lender’s standard variable rate. It’s also vital to understand whether you are free to remortgage, or if you are tied to the lender by an early repayment charge – this, too, should be outlined on your mortgage paperwork.
The second thing you should do is maintain an awareness of interest rates and the overall mortgage market. That doesn’t mean you have to scour the financial papers diligently every week; but periodically – perhaps once a year when you receive your annual mortgage statement – take a bit of time to check out some price comparison sites or mortgage best-buy tables to see if your existing mortgage deal is still competitive. If it isn’t, then it may be worth your while to consider remortgaging.
Can I Benefit From Remortgaging too?
Remortgaging is, quite simply, transferring your existing mortgage borrowing from your existing lender to a better deal with a different lender. Some homeowners also take the opportunity to increase their mortgage amount by borrowing extra at the same time – for example, for home improvements. The remortgage process is usually a bit more straightforward and streamlined than taking out a mortgage to buy a new home, but as a contractor, you will find some of the same challenges apply.
Some lenders have more contractor-friendly lending policies than others. While it’s still common for some lenders – particularly more mainstream companies – to ask for three years’ worth of accounts to evaluate income and affordability, others have well-established underwriting policies that are more flexible in assessing contractor income; for example, they may ask for your current job contract and three months’ bank statements to assess your current and projected income.
Depending on what type of mortgage deal you currently have in comparison to the prevailing mortgage market conditions, it may be possible to make substantial savings on your monthly payments; that’s extra money in your pocket each month which you can either treat as disposable income, or even potentially use to start reducing your mortgage debt. Remortgage packages often come with attractive incentives, too, so keep an eye open for deals which include inducements such as free legal fees, a free valuation or even cash back.