There is something pretty dull about discussing mortgages isn’t there? It is for this very reason, that so many people sign up for a mortgage one time and never bother to change it unless they move house!
A very good friend of mine made himself a small fortune in the markets crash of 2008/2009. Tracker mortgages in the UK track the Bank of England base rate – for example you could have a base rate + 4% – where the mortgage interest you pay is directly linked to the country’s base interest rate. My friend invested heavily in property in the early nineties – he built up a portfolio of 25 properties, 20 of which had tracker mortgages. Back when interest rates were much higher, tracker rates of base +1% were quite common and he happened to have about 20 of said properties on this deal! When the base interest rate crashed to 0.5%, he ended up making an additional £8000 a month in rent and has continued to do so until this very day! He is a savvy guy and reinvested the money into capital repayment and is now a very wealthy man!
My Plan
I certainly don’t have the capital to buy myself tens of properties yet, but a couple of things have enabled me to make a very savvy move:
- The value of my house has risen by over 15% in the last couple of years
- Overpayments reduce capital owed!
Mortgage rates are always based on one statistic – LTV – Loan to Value. This is, a ration of how much you owe, versus how much you own! The lower the LTV, the more favorable your interest rates are – and different criteria equal very different rates.
If you have an 85% LTV (you owe £85 for every £15 that you own) you can expect to see rates of around 4%. If you have a 70% LTV (owe £70 for every £30 that you own) you can expect rates around 2%! While 2% doesn’t sound like a big deal, it quickly equates to a heck of a lot of money; If you owe £200,000 on a house, 2% equates to £4000 of interest a year – over £300 a month!
If you buy a house in an area where properties are appreciating – you can get very lucky. I spent a long time researching neighborhoods and towns that were ‘up and coming’ before finally buying. New developments, business and expansion has created a demand for properties in my area and we have made ourselves about £25,000 for doing nothing – far more than we have re-payed on our mortgage over the last couple of years.
What Does This Mean?
For us, this means that when we come to remortgage our house next year, we are going to hit the sub-75% loan to value category. From checking current rates on TotallyMoney we can currently expect to save over £400 a month on the deal that we currently have!
Being the savvy personal finance blogger that I am (I have to set a good example..) I plan to reduce the term of the deal – probably towards 12 years – in order to pay off the balance more aggressively. In effect, we will be no better off with how much spending money we have month-month, but the capital that we own on our house will go through the roof. The more that we pay off on this mortgage, the quicker we can buy a second property at a more attractive LTV! It’s a bit of a game right……
I urge everyone who has not bothered to remortgage in too long to consider it; you may be very surprised on how much you can save!
When last did you re-mortgage?
I refinanced a couple of years ago at 1.78% above base rate which has been awesome so far. Even just a few points mean huge savings.