Moving your mortgage

December 1st, 2005

Remortgaging is easier than ever
Many homeowners could benefit from switching mortgage provider, experts suggest. We explain how to go about remortgaging.
Can remortgaging really save money?

It is estimated that more than half of all borrowers are continuing to pay over the odds for their mortgage each month.

Usually these people are paying the lender’s standard variable mortgage rate.

Switching to a cheaper mortgage deal is one of the easiest ways that homeowners can save money.

For example, someone with a £100,000 loan who switches from a standard variable rate deal could save about £1,000 a year for each one-percentage point reduction in their interest rate.

Remortgaging has become much easier in recent years.

More lenders are offering specialist remortgaging services - often with free legal and arrangement fees thrown in.

My neighbours have told me that you can borrow more money through remortgaging, is this right?

Yes. Remortgaging is not only about saving money.

As well as reducing your monthly payments, you can also use remortgaging as a way of releasing some equity that has built-up in your property’s value.

If you are tempted to release equity, it is still important to be cautious even though rates are so low.

Borrowing through your mortgage may be much cheaper than taking out a personal loan, but the debt is secured.

This means that if you can not keep up with additional payments, you could risk losing your home.

Where do I start?

The first step is to check the terms and conditions of your existing mortgage.

These will tell if you are tied-in to your mortgage deal or if there are any redemption penalties - sometimes phrased as early repayment charges.

If you are locked-in, you must decide if it is worth switching to a different rate or stay put until the penalties have expired.

You may have been with your existing lender for a long time and feel a sense of loyalty towards the company.

However, most lenders do not reward this loyalty with a reduction in rates.

You should therefore expect to shop around and look towards a different lender to get a better deal.

You can either go direct to a lender or try a mortgage broker who will scour the market for you.

The advantage of using a mortgage broker is that they will look at what different lenders are offering and they often have special deals, which are not available elsewhere on the High Street.

Which deal is best for me?

You will face a choice of broadly four types of deal: fixed, capped, discounted and flexible.

Fixed-rate schemes are ideal for people who want certainty and must be able to regulate how much they will be spending each month.

The rate is usually fixed for between two and five years.

In a hugely competitive market, building societies and banks are continually updating and extending their range of mortgages

The different types of mortgage explained

Discounted loans offer a reduction off the standard variable rate for a set period.

If rates fall further, the rate that you will pay will also go down.

However, when rates rise, so will your mortgage payments.

A capped-rate loan will set a limit on the rate you will pay.

If rates rise, your payments will not go above that level. However, if rates fall below the cap so will your repayments.

Flexible mortgages allow you to overpay and underpay when you choose and without penalty.

This is ideal for people who have fluctuating incomes or who want to clear their mortgage early.

An increasing number of fixed, capped and discounted deals have more flexible features as well.

What should I avoid?

While choosing a mortgage broker saves you legwork, it is important to ensure that you do not pay over the odds for the service.

It is also wise to do your own research to compare the rates that a lender or broker is offering you.

Avoid deals with extended redemption penalties.

While these had been phased out in recent years, a number of lenders have reintroduced extended penalties to clamp down on so-called ‘rate tarts’ who move around frequently to get the best deal.

Extended redemption penalties are often hidden in the small print of a mortgage contract and are sometimes called early repayment penalties or charges.

How do I apply?

Obtain a ‘redemption statement’ from your existing lender.

This will tell you how much you owe.

You must then complete an application form from your new lender, along with details about your income such as bank statements, payslips, a P60 form, mortgage statements and proof of identity.

Your new lender will value your home. This will cost between £200 and £300.

Most lenders will also charge an arrangement fee of about £300 and you will have to pay legal costs of about £350.

Some lenders offer dedicated remortgaging services with free legal work and valuations.

How long does it take?

It should take about a month to complete the remortgage.

You will get a mortgage offer of advance, if the lender’s surveyor is satisfied with the value and condition of your home.

You new lender will liaise with your existing company.

Once you have received a completion statement from your solicitor or new lender, the process has finished

Entry Filed under: Mortgages