Whether you have or haven’t heard of the ‘mortgage prison’ term before, it’s definitely a place you don’t want to be. Find out how to escape and more in this post.
Have you heard of the term mortgage prison? Well, if you have you probably know, it’s not good. But, if you haven’t, you’re in the right place to learn. See, those stuck in mortgage prison are the ones who are unable to leave their current mortgage because they cannot meet the strict affordability criteria of lenders. Lending has changed over the years, and become stricter, which means if you’re stuck on an SVR (Standard Variable Rate) mortgage, you’re well, stuck.
However, don’t despair. We’ve spoken to Zing Mortgages, an expert mortgage broker in Southend, about how to get out of mortgage prison. We’ve got all the information you need, right here in this post. Everything from what a mortgage prison is to how to get out of it. And even a little information on the types of mortgages that are best for you, when looking to ‘break out’ of mortgage prison.
This post has all you need to know about mortgage prison.
What is Mortgage Prison?
Like we’ve said above, mortgage prisoners are those whose introductory rate has ended, and they’re now on an SVR. Not only that, but when they come to look for a different deal, they cannot pass the affordability criteria, in order to switch to a better deal. It’s a vicious cycle. Because, as the borrower, you’ve shown you can pay high interest rate repayments (on SVR mortgages), but when you want to switch to a lower rate, you cannot pass affordability checks. It makes no sense to the average borrower, but lenders’ criteria are strict. Due to this rigidness, you’ll be unable to find yourself a better deal (even if the deal means you pay less each month).
If you’re currently tied into your introductory period still, you probably won’t be able to exit your mortgage easily. Unless, you’re willing to pay high early repayment charges. However, if you’re currently on an SVR mortgage, one thing that may be stopping you is your credit score. Your credit score is one of the factors lenders will judge you on, when assessing your affordability for a mortgage. So, either you’re stuck in your introductory period, don’t have the right credit rating or can’t meet your new lender’s affordability criteria.
But, not all hope is lost. Because there is a way to get out of your current mortgage prison. If you’re looking for the ‘get out of jail for free’ card, then the answer is simple. You should remortgage.
Remortgage to escape
Now we come to remortgaging. For those readers that aren’t too sure on the actual term, we’ve got you covered. See, remortgaging is about taking out a new mortgage to replace your old one. When you’re off your introductory rate period, you may find that your mortgage has gotten a little more expensive. That’s because at the end of fixed and tracker mortgages, you land on an SVR mortgage – a rate that can change when the Bank of England’s base rate changes. So, in order to find a fairer and better deal, many choose to remortgage with a new lender.
However, some will find that if they cannot pass the affordability criteria, they are unable to remortgage and leave their SVR one. It should be noted that if you’ve had your application denied by one lender, this isn’t the case for all of them. The key is to find a lender that will accept you – which is easier said than done, but not entirely impossible.
So, if you’re able to find a lender, congratulations! You’ll be able to remortgage. By remortgaging, you’ll find a better deal and save money too. Switching to a ‘fixed’ mortgage rate is ideal, because when the Bank of England’s base interest rate rise, your mortgage will be unaffected. This is because SVR mortgages follow the base rate, so when it rises, your interest rises too – making your payments more expensive. However, when it drops, you won’t see a decrease in monthly payments (as you’re on a fixed mortgage). The interest rates are ‘fixed’, hence the name.
Is it time to remortgage?
If you’re wondering about if it’s the right time to remortgage, ask yourself these four questions:
- Is my introductory deal about to end?
- Is my home worth more now than it was when I took my mortgage out?
- Do I need to borrow more money?
- Am I on an SVR mortgage?
If you answered any of these with yes, then it’s time to remortgage. However, if there are high early repayment charges associated with your current mortgage, this means it’s not ideal to remortgage. Simply because the charges can outweigh the savings of remortgaging. Sometimes, for those in need of borrowing cash, a loan may be the cheaper alternative.
So, if you’re in a mortgage prison, and looking for a way out, look into remortgaging! Sometimes, it’s the only way to escape a bad mortgage deal. However, it’s not ideal for everyone.