Ten things to know about remortgaging

WE all have our price. When it comes to remortgaging, what’s yours? Chances are the answer is savings of £93 a month. That is the trigger point at which borrowers take the trouble to find a better deal, according to research by Bradford & Bingley, the high street broker.

If you are ready to make a move, here are ten things that you need to know about remortgaging.

1. No excuse for apathy

Charcolonline, the mortgage website, says that more than half a million homeowners squander hundreds of pounds each year by not switching from their lender’s standard variable rate (SVR).
Background

* A basic guide to mortgages

* Ten things to know about remortgaging

* How to sell your home without an estate agent

* Ten things to know about equity release

* Ten ways to combat rising mortgage costs

2. Complacency costs

Drew Wotherspoon, PR manager for Charcolonline, says: “Some consumers are sitting on their hands when they could make great savings.”

For example, an interest-only, £100,000 loan on an SVR of 7 per cent costs £583 a month. A switch to a two-year fixed rate at 4.28 per cent would cost only £416 a month.

3. To fee or not to fee

Remortgaging can incur arrangement, valuation, legal and administration fees of up to £1,500, but there are deals that pay some of these costs for you.

4. Fees can cut costs

Few things in life are really free, and fee-free deals tend to carry rates that are up to a quarter of a percentage point higher than products where you pay the costs. The larger your loan, the more cost-effective it will be to secure the keenest rate and pay the fees.

5. Redemption penalties

These are charged when you desert a mortgage during any offer period, but some lenders charge beyond this. Penalties can cost thousands, so work out yours before switching.

6. Don’t fixate on base rate

Trying to second-guess the Monetary Policy Committee by waiting for rates to fall further before switching is not a good idea unless you are a confident economist (and plenty of these get it wrong).

7. What’s important?

Do you want the stability of knowing what your repayments will be by opting for a fixed rate? Would you be happier taking a chance that rates will remain stable or come down by selecting a mortgage that tracks the base rate? Mortgages that offer a discount on the base rate are usually cheaper than fixed-rate deals.

8. It’s no big deal

Remortgaging typically takes between four and six weeks. Mr Wotherspoon says: “There is the misconception that remortgaging takes up too much time and effort, but it is relatively painless for most people and should not take more than two hours of a borrower’s time.”

9. Advice on advisers

With thousands of mortgages available, asking an expert to find the most suitable one for you is a good idea. Some brokers charge up to 1.5 per cent, but you can receive independent guidance at no cost. London & Country, for example, offers a free telephone service with brokers paid commission by mortgage lenders.

10. Do you need the equity?

It can be tempting to cash in some of the equity in your home to pay for anything from home improvements to holidays. This is a cheap way to borrow, compared with credit cards and personal loans, but taking out a large chunk of cash and paying it back over the term of your mortgage means that you could still rack up a lot of interest.

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