Homeowners who let their mortgage deal slip onto a higher Standard variable rate (SVR) rate when their fixed deal comes to an end can be adding thousands extra onto their repayments
Brits could be paying an “unnecessary” extra £3,000 on their mortgage by making this one simple mistake.
Homeowners who let their mortgage deal slip onto a higher standard variable rate (SVR) rate when their fixed deal comes to an end can be adding thousands extra onto their repayments. This deal is typically more expensive and it is down to the lender to decide what the rate is. According to research conducted by personal finance comparison site finder.com, almost a third of homeowners (31%) have let their mortgage rates revert to a higher rate for at least one month after their deal has ended.
Someone paying off the cost of the UK’s average house, worth £281,913, on a competitive fixed three-year rate of 5.5% would pay £1,361 per month during those three years. However, if that same person did not remortgage immediately at the end of the initial fixed term, the interest rate would revert to the lender’s standard variable rate – currently, this is usually around 7.5%.
The survey found that the average amount of time a person let their mortgage revert to a higher rate was 10 months over their mortgage. As a result, this would cost the homeowner around £1,661 per month, which is an extra £300. The average person paying 10 months of this would therefore lose an extra £3,000 to pay the extra interest.
Around 11% of respondents who had been on a revert rate said they had paid this higher amount for more than one year, while 3% admitted to paying a revert rate for more than five years. According to finder.com, this could mean an extra £30,000 in interest costs.
Liz Edwards, mortgage expert at the personal finance comparison site finder.com said: “It’s easy to let renewals slide for a while and even if you remember to renew your mortgage, if you leave it too late then you may need to wait a month or two for the rate on your new deal to kick in. For mortgages this can have a huge impact on the amount you pay.
“The extra monthly cost is shocking in itself but as an illustrative point, if someone paid off a 30-year mortgage using the current average revert rate vs the current average 3-year rate, they’d pay an extra £180,000 in needless interest. So, set a calendar reminder and make sure you find a new deal in plenty of time before your fixed-deal expires.”
