Would you pay over the odds for a pair of trousers? Of course not. So why pay more than you need for your mortgage? Anna Bowden explains the ins and outs of remortgaging
Home owners in the UK are paying too much for their mortgages, according to Which? – to the tune of £2.2 billion a year. This is mainly because of inertia, says the report; most of us just can’t be bothered changing to a better deal.
If you are currently paying your lender's variable rate then you are probably paying over the odds for your mortgage. There are hundreds of deals available and interest rates are at an all time low, so why stick with your existing lender if you could do better elsewhere? Go out into the marketplace, shop around and find a deal that will reduce your monthly payments and thus save you a fortune over the term of your mortgage.
Remortgaging can also be used as a way of releasing some of the equity that has built up in your property's value, although there are certain caveats despite the fact that rates are so low: borrowing through your mortgage may be much cheaper than taking out a personal loan, but the debt is secured on your property and if you can’t keep up with the payments you could risk losing your home.
Add it up
Remortgaging is certainly more straightforward than it used to be, but borrowers shouldn’t rush into anything. The most important thing is to consider any costs involved. There may be redemption penalty clauses in your existing mortgage and/or in the next one, making you pay for leaving your lender or making you stay with the new lender after the special rate has expired. Redemption penalties do tend to be attached to fixed-rate and discount deals and are often only applied only during the special offer period, but your existing deal may still have overhanging penalties and it could cost you to leave the lender even if you are paying its standard variable rate (SVR).
Other costs could include insurance, a valuation and solicitor's fees and, in addition, any arrangement/application fees charged by your new mortgage lender which may cost as much as £500 or more. These costs, along with the penalties, could cancel out the savings you are hoping to make by switching mortgages. It's a simple question of adding it up. Obviously you don't want to switch mortgages to supposedly save money only to find yourself trapped in an unnecessarily expensive deal. The best remortgaging deal may be one that doesn't offer the lowest interest rate but doesn't tie you in either.
Before you apply for a new loan it is well worth speaking to your existing lender, as it might be able to offer you a deal which is better than your current one.
If it is unable to do so and you have found a new mortgage, you need to set the conveyancing process in motion. If your remortgage is at all complex it is worth talking your requirements through with a solicitor to get an idea of how much the legal work will cost.
Where do I start?
Get in touch with your lender and ask for a redemption statement. This should be fairly straightforward. When it arrives it will include information concerning the amount still owed on your mortgage and any penalties you will face if you want to pay off the loan. Armed with the redemption statement you can think about your new mortgage. Always get three quotes for comparison purposes. Once you have found a potential deal request illustrations showing what the monthly repayments will be. These figures can be compared with your current repayments to show the real monthly savings. Remember, if you are nearing the end of a fixed- or discount-rate deal you should also get an illustration from your current lender showing the repayment on its standard variable rate (SVR) as a comparison.
Lenders will often let you book a deal two or three months in advance, so you don’t need to wait until your existing special offer period is at an end before you start the remortgage process. If you are organised you could even complete on the day that your existing deal switches to a higher rate!
It should take about a month to complete the remortgage. You will get an offer of advance if the lender's surveyor is satisfied with the value and condition of your home, and your new lender will liaise with your existing lender. Once you have received a completion statement from your solicitor or new lender, the process has finished and you can relax. Just remember, remortgaging your property is not something to be ashamed of or shy about. You do not owe your lender loyalty and they are certainly making money out of you, as most lenders do not reward loyalty with a reduction in rates. Look around, find the best rate and spend the difference on yourself!