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Is it worth remortgaging?

How to remortgage

More than 18 million homeowners have never remortgaged and are wasting hundreds of pounds every year by sticking with a mortgage deal that is no longer competitive, according to research.

The survey found that a staggering 67% of borrowers who have lived in their home for more than 20 years and 60% of those who have lived in the same house for between ten and 20 years have never switched their mortgage. Yet remortgaging needn’t be a hassle or costly.

For example, a homeowner with a £50,000 repayment mortgage over 25 years paying their lender’s expensive standard variable rate, typically at about 6.5%, has monthly repayments of about £340. In contrast if they switched to one of the best discounted rate loans on the market – Portman’s two year discount with a starting pay rate of 4.19% – their monthly repayments would drop to just £272 – a saving of more than £1,600 over the two-year period. Even after the £499 arrangement fee and legal fees are paid this borrower would still be significantly better off even if interest rates rise. Borrowers with larger mortgages stand to gain even more by switching to a lower rate.

‘It is unrealistic to expect borrowers to remortgage constantly but looking closely at your financial circumstances every few years could mean that you end up saving yourself thousands in the longer term,’ says Mark Chilton, chief executive at Purely Mortgages in central London, which conducted the research. ‘I would strongly urge borrowers to at least find out whether they could be on a better rate.’

The UK mortgage market is one of the most sophisticated in the world and homeowners should take advantage, Chilton adds. For example, you could use your mortgage to consolidate expensive credit card and loan debts and still bring monthly repayments down. Alternatively, an offset mortgage allows you to offset any savings against mortgage debt only paying interest on the balance – but without actually losing your savings. Get advice and get your mortgage to work for you.

How to remortgage:
Remortgaging is probably one of the simplest financial transactions you can do. It can be easier than switching your bank account, for example.

An independent mortgage broker is probably the best place to start as they can look at your current situation and see how much cash you could save by switching your mortgage lender. They take into account the related costs and fees associated with remortgaging, the size of your mortgage and whether you want a fixed or discounted rate deal. An independent broker will look at mortgage deals from across the market to find the best one for your needs. Some brokers charge an up-front fee for their advice, such as £200, others are fee-free, so check at the outset.

Find out what penalties might apply if you switch away from your existing lender. If you are in a fixed or discounted rate deal there may be early redemption penalties. Most borrowers paying standard variable rate should not have a redemption penalty, but they may have to pay an exit fee, typically about £150 to £200 to their lender.

On average it takes about four to six weeks to remortgage, depending on the lender, so you need to factor this in if you are coming to the end of another fixed rate or discounted rate deal and want a smooth transition.

Top tips

Read the small print. Check that your existing mortgage does not have an exit penalty if you switch. These charges need to be taken into account when weighing up the advantages of remortgaging.
Seek independent advice from a mortgage broker. The internet can be helpful for those who want to do their own research and seek out best buy deals but a broker can also save time and search out top rates.
Speak to your existing lender. Tell your lender you are considering remortgaging and ask what deals it can offer. Some banks and building societies will offer good deals to get customers to stay rather than switching away. Retention mortgage products can be good value when the extra costs associated with remortgaging to another lender are taken into account.
Fee-free deals may not be as attractive as they first seem. Often with fee-free mortgage offers the fees have simply been costed into the interest rate you pay, so over the term of the deal they may not work out any cheaper. Do your sums before you switch.

Find out now whether you can save money by remortgaging

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