How a Llama came to save thousands on a Mortgage but fell asleep (Remortgaging)

Member Name: marandina

Product:	Remortgaging
Date:	08/04/02 (146 review reads)
Rating:

Advantages: Could save you thousands

Disadvantages: Shouldn't really be any

Have you ever wondered just how much money may be locked up in your home? Well, it could be thousands of pounds but few realise and even fewer do something about it.

I enlisted the help of my brother's pet llama from South America. He's kinda laid back but faces the same issues as you and me.

So let me introduce you to Larold the Llama (so called 'cos his father was a big fan of Steptoe & Son although he did have a little difficulty hearing properly).

I arranged a meeting with Larold a couple of weeks ago and we duly met in a copse in Central Scotland.

My brief was this: to reduce Larold's mortgage outgoings on his copse which he was presently still paying to Tharipoff Bank PLC. I mean, at a standard rate of 25% he could surely do better!

So we visited our local WH Smith and purchased one of the many useful magazines featuring all of the latest mortgage deals. We duly returned to Larold's copse, ready to review the magazine's contents.

"What on earth is re-mortgaging?" Larold asked inquisitively. "Well.." I replied. "Of the 11 million borrowers in England a whopping 8 million have never considered re-mortgaging. Basically, all it means is transferring your existing mortgage from the present provider to another one. The idea is to negotiate a lower rate to save you loads of money so that you can go and spend more on...erm...whatever it is you spend your money on."

"Oh." Said Larold. "My Bank Manager told me that I could never leave his company and had to stick with him for the duration." I looked at him re-assuringly and confirmed, "A lot of folks like you suffer from inertia. You continue to pay your mortgage without thinking when you could be shopping around for a better deal."

"So what do I do then? I mean, I don't really know much about mortgages." Larold looked vulnerable just for a few secon
ds. It would have been easy to mother him knowing all he'd been through.

"Okey dokey, let's start at the beginning then." I crooned.

"A mortgage is a loan granted to enable you to buy a house. Of course, you have to pay the money back, usually in the form of monthly instalments. Most folks pay over 25 years but you can have a shorter or longer term. The origins of mortgages go way back and originally, most folks never did pay the loan back completely hence the term including "mort" which means death.

There are all sorts of different sorts of mortgage and you need to choose according to your circumstances. I'll pick out the main one's for you Larold. You'll need to know that you have to have some equity in your property, as most lenders will not lend more than 90% of the valuation. You can work this out by getting an up to date valuation done. Then work out what 90% of this figure is. If what you are left with is more than the figure you owe now then you are in business and may even be able to borrow a little more for other things too

Fixed rates are just that. They are fixed for a period of years after which the scheme usually reverts back to the lenders variable rate (standard rate usually a few percentage points above the Bank of England Base rate and varies according to how the BOE rate moves up and down). Some fixed rates may include a commitment to stay with the lender's variable rate for a specific time after the fixed rate has ended before you are allowed to negotiate another deal. These are called tie-ins and rather frowned upon by the financial authorities these days.

Fixed rates are great if you want to know exactly what you will be paying out and will suit folks on a budget.

Standard Variable rate has been mentioned above. The trouble with SVR is that these customers tend to subsidise other people's deals and you really ought to look at this close
ly. My advice with SVR is to approach your existing lender first to see if they will negotiate a new deal with you knowing that you have the right to shop around. Finding the latest deals is easy. You can go on the Net (e.g. my beloved MoneyXtra.com), try the quality papers e.g. Sunday Times/Sunday Telegraph, contact a broker who will search for a suitable deal with you or arrange a meeting with your local bank or building society (doesn't have to be face to face you know? Can be by telephone or you can even apply online!)

Discounted rates give you a deal that will usually be allied to a reduction of a fixed amount against the SVR or even the BOE base rate. You'll need to take care with redemption fees on any scheme you negotiate which is the tie in referred to above. What that means is that if you decide to either make a part repayment, pay the debt off in full early or re-mortgage elsewhere then on some deals your lender reserves the right to impose financial penalties as part of the contract. Often these will be on a sliding scale, reducing the longer into the term of the deal you go.

Discounts usually offer the lowest rates in the first instance and tend to be popular amongst first time buyers. There is the risk of rates going up in the meantime so you'll need to have a view on how you feel that the economy will do in the future. There is usually no shortage of folks with an opinion on this although the trick is knowing whom to trust.

A variation on this is a tracker rate, which will track either the SVR or BOE base rate and are probably for those folks who feel relatively sure about the future of base rate movements. Tracker rates have been popular in recent times with the base rate so low for so long. Current speculation is that it will rise from its present level of 4% to 5.5% by the middle of next year.

Capped rates will fix a maximum rate at which you will pay but allow you to pay a lower rate if the variable
rate drops below your upper rate. You may even get a lower rate agreed to below which your rate cannot go. These suit folks wanting the security of knowing the maximum that they will pay but having the knowledge that their rate could go down. This amounts to the best of both worlds in some eyes.

Finally, flexible mortgages are all the rage just now. These allow you to make part repayments and some double as a chequebook allowing you to borrow for everyday things at the mortgage rate. Also known as current account mortgages both Virgin and Woolwich seem to be the obvious names associated with this sort of arrangement. These won't suit everyone so by all means go into some detail before you decide."

By now Larold had wandered off. I found him chewing on some grass looking up at the sky reflectively. "Am I boring you?" I asked.

"I'm passed boredom." He replied. "Couldn't you just organise it for me?"

I wondered whether I would have got on better with a human being after all. This llama looked like a prima donna (or should that have been a donna kebab?).

"All you need to do is this." I stated. "Approach your lender about a better deal being available. As you deal with Tharipoff bank this might not be such a good idea. If it's a no go then shop around as mentioned earlier. If you've been a good payer you should have no problems in finding someone to take you on. Then, if you like what you find, apply as mentioned above. Re-mortgages usually take around 4 –6 weeks to go through. Re-mortgages are actively sought by lenders at the moment and you'll find that many will pick up the tab for the valuation and even the basic legal fees involved so you could end up paying nothing for the privilege. You may need to watch out for arrangement fees that come with some deals but banks and building societies have signed up to the Mortgage Code which obliges them
to point you in the right direction according to which is the best deal according to your individual circumstances."

I looked across and Larold had finally fallen asleep. Even though he could save thousands of pounds it didn't really seem to matter to him after all. His eyelids fluttered as though in REM. I tried to imagine what he might be sleeping about. Maybe he was in a field somewhere thinking about his next meal?


Thanks for reading

Marandina

Notes
Your choice of repayment vehicle shouldn't affect the ability to re-mortgage i.e. endowment/repayment mortgage etc.

Daily interest is a popular option allowing you to have interest calculated daily rather than annually on the mortgage amount outstanding. By overpaying regularly you can reduce the term considerably.

Examples of current re-mortgage deals around are Coventry BS 3.69% i.e. 2.06% discount off SVR until 31/5/04. £295 fee. Max LTV 95%

3.74% Fixed rate at Market Harborough for 2 years. Fee £295. Max LTV 80%.

As ever, don't take my word for it ~ shop around!!

*This was a one-off for Larold as he's quite shy really and unlikely to appear in the spotlight again.

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