Remortgages

Whereas a mortgage used to be for life, or at least for the length of a stay in one property, people now switch mortgages many times and change their provider almost as often. Some remortgage in an attempt to get a better mortgage deal and save money; others are using it as a way to get some extra cash.

Can a remortgage really save you money?

It depends on your circumstances, but current estimates suggest that over half of UK borrowers are paying more than they need to for their mortgage each month. Usually that’s because they are on the lender’s standard variable rate (SVR) which is the highest rate the lender offers, so there are bound to lower rates available elsewhere.

As base rates have increased, mortgage providers have been hiking mortgage fees where they can. Mortgage arrangement fees have soared in recent months, as have the charges for redeeming a mortgage early. This means that you have to work through the figures to make sure that anything you might gain through apparently lower interest rates is not taken back straight away through higher charges.

Professional advisers can help you through the mortgage minefield. Chris Rayner, Managing Director of Independent Mortgage Advisor, The Mortgage House said: ‘Take care if you choose a financial adviser as they may be tied in to particular providers and you will only get advice about their products. That is not what you want. You are better off with an independent mortgage adviser who can give you advice from the whole of the mortgage market.’

Doing your own research can help. Look at the terms and conditions of your current mortgage, for any tie-ins on your mortgage deal and for any penalties for redeeming your mortgage early – called redemption charges or early repayment charges.

There has been a lot of talk about equity release and borrowing money through a remortgage to use as you wish, so remortgages do not just have to be about saving money. Remortgages can be used to borrow the same amount as before, but at lower repayments; and remortgages can be used to borrow more money than before as your home may have gone up in value and now be worth a lot more than your previous mortgage amount.

It is important to take steps to equity release with care. Remortgages for this purpose are like taking out a personal loan, but with cheaper interest rates. The downside is that a mortgage debt is secured – by your home – so if cannot keep up repayments, the lender may repossess your home. Remember that when you borrow more money, even if you succeed in getting a better interest rate, your monthly repayments are likely to go up, depending upon how much more you borrow.

When considering remortgages you are faced with a number of different mortgage types: fixed rates, discounted mortgages, capped rates mortgage and flexible mortgages. You should look to avoid extended tie-ins, that is those where the redemption penalty goes on longer than the deal period. It is important to read the small print and don’t ignore it just because headline interest rate seems attractive.

To remortgage you will need a redemption statement from you existing lender, telling you how much you still owe. Then apply to your new lender. Your house will need to be valued, and you will need to go through the process, including legal work. There will be fees associated with these functions on remortgages. Include them all in your sums, and make sure the benefits outweigh the charges.

The whole process should take about a month, and your new lender should liaise with your previous lender to sort it all out.