Wealth Check: Time's up; don't put off switching that loan

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The Independent Online

Jessica Smithson, 31, bought her own home in Stroud, Gloucestershire, five years ago. After a long period in academia, she is now employed by a government research funding agency.

She has three priorities. First, her five-year discounted-rate mortgage deal with Halifax Bank expires at the end of the month. Should she remortgage?

Second, Jessica is about to get a pay rise. She'd like to put the extra money towards savings - ideally £100 a month in some sort of account. But which one?

Third, her pension; should she move the savings she built up with a previous employer into her current employer's scheme?

Independent financial advisers Anna Bowes of AWD Chase de Vere, David Hollingworth of London & Country Mortgages, and Philippa Gee of Torquil Clark give their advice.

Case notes: Jessica Smithson, 31, Stroud

Personal: Jessica works for a government agency that offers grants to research companies.
Income: Just over £24,000 a year.
Property: She owns her own home in Stroud. Discounted-rate mortgage with Halifax, which is due to end this month.
Pension: Member of scheme at work.
Savings: £2,500 in a Lloyds TSB account paying 3.50 per cent, and £100 in premium bonds.
Monthly expenditure: Disposable income of about £1,500 is all spent on bills, general living expenses and holidays, although a pay rise is imminent.

MORTGAGE

Jessica must act quickly, says David Hollingworth; remortgaging can take a couple of months. From February, she will pay Halifax's standard variable rate - 7.25 per cent after this month's base-rate rise, and getting on for a third more expensive than the cheapest deals on the market.

Hollingworth says Jessica must decide whether she wants to remortgage to another discounted variable-rate loan, or fix her rate. Fixing offers certainty about future mortgage costs - and rates could rise again - but a discounted rate could prove a little cheaper if base rates fall later this year.

Should Jessica stick with Halifax? Rival lenders may offer cheaper deals, but there will be more costs in switching - arrangement fees, valuation charges, legal costs - than in moving to a new Halifax deal.

Some lenders now offer fee-free mortgages; in return, borrowers pay a slightly higher interest rate. The only way to compare home loans is to look at the total cost of charges and interest over the period of the deal. On smaller loans, fee-free options can be good value.

Hollingworth says offset mortgages (where borrowers hold savings in the same account as the loan to reduce the debt on which interest is payable) can work well. But offset interest rates tend to be higher, and as Jessica's savings aren't large she won't benefit much.

SAVINGS

Philippa Gee would like Jessica to move her £2,500 of savings away from Lloyds, where it's not earning enough interest. She suggests opening a cash ISA, where interest is tax-free; Portman Building Society pays 5.8 per cent a year.

Jessica must find a good home for her pay-rise cash. The top rate now is Scarborough Building Society's offer of 5.5 per cent, but it may be worth waiting a few weeks to see how providers react to the base-rate rise.

Anna Bowes suggests that some savings could be invested on the stock market for better longer-term returns. She suggests funds such as Jupiter Merlin Growth or New Star's Tactical fund, or an ethical fund, such as F&C Stewardship or Standard UK Ethical.

PENSIONS

Bowes thinks Jessica should leave her previous pension savings where they are. The scheme is good value.

INSURANCE

Our advisers are concerned that Jessica is not properly insured. Bowes thinks she can save money on her life insurance plan, held with her mortgage provider. Gee says Jessica must check whether her employer offers decent benefits in the event of her being unable to work due to ill-health.

For a free financial check-up, write to Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk

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