Is it worth remortgaging?

In the past remortgaging was a sure-fire way to save money – and it was easy to make big savings. Today, however, it is not so simple as most lenders have hiked the fees and penalties they apply to customers who switch to a different provider.

As a result homeowners need to take a bit more care when remortgaging and look out for the pitfalls. But the good news is there are still healthy savings to be made for those prepared to put in a bit of groundwork and seek out the best value deals.

For example, a borrower with a £150,000 mortgage would save almost £1,500 in a year by switching from an expensive standard variable rate of 6.5% to a low two-year fixed rate at 4.5%, even taking mortgage fees of £500 into account.

Brian Murphy, lending manager at the Mortgage Advice Bureau, a mortgage broker based in Derby, says unless a borrower is already on a low rate mortgage deal or they are planning to clear their mortgage in the near future then remortgaging should be their number one New Year’s resolution.

‘Borrowers paying their lender’s standard variable rate should be considering the other options available to them,’ says Murphy. ‘They can almost certainly save money elsewhere. If your current lender will offer you a better deal it might be worthwhile but you should also compare this to the rest of the market first before you make your choice,’ he adds.

Brokers recommend borrowers try to resist the temptation to extend their mortgage again when they remortgage to a new deal. If you do not begin to reduce the term of your loan you may still be paying the mortgage after you retire and this is likely to be a considerable financial strain.

‘If you are able to afford it, try reducing the term of your mortgage,’ says Murphy at the Mortgage Advice Bureau. ‘This way you will pay off your mortgage faster at the current low rate and save money in the long term.’

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