Guide to Remortgaging

Simon Tyler of Chase de Vere Mortgage Management in London says: 'There are about three million people paying their lender's standard variable loan rate, at spring 2005, averaging about 6.75 per cent.

'But if someone with a £150,000 mortgage were to switch to a two-year discounted rate of 4.44 per cent from Abbey, for example, they would save £210 a month, or £5,059 over the two-year fixed-rate term, assuming rates stayed the same.'

Tyler adds: 'There is nothing else in the world of finance that is so easy to do and which consistently yields such spectacular savings.'

Remortgaging takes only a couple of weeks at most. It need not mean hefty legal bills: lenders will often pick up the bill and may even waive some arrangement costs or valuation fees.

So, with the savings clear, how do you choose between the thousands of deals?

You might be tempted by a discounted rate – these offer a percentage off the lender's standard variable rate – or one with a fixed rate. Make sure you aren't hemmed in by penalties or compulsory insurance.

Or consider an offset mortgage. This sets any savings you have against your mortgage, thus cutting the amount of interest you have to pay. Many lenders now offer these.

Step by step to a new lender

1. Write down your monthly repayments and check your mortgage rate.

2. Work out any early repayment charges on your loan, which can amount to thousands of pounds.

3. Compare deals by using the internet or phoning around.

   Ask your lender for a better deal. It can cut hassle as well as the cost of switching.

4. If you are borrowing extra when remortgaging, check you won't be stung for a mortgage indemnity guarantee premium – a payment that protects the lender, but not you, if you cannot keep up repayments on your loan.

5. Consider other costs such as loan arrangement fees and broker fees.

6. Consider paying the arrangement fee on completion, rather than adding it to a loan to avoid paying interest on this amount for the life of the loan. Booking fees, usually on fixed-rate deals, may be in addition to an arrangement fee and cost hundreds of pounds. They are paid up front and are lost if you pull out of the deal.

7. Valuations usually cost £300 to £350 – less for remortgaging with the same lender. Legal fees vary, but average £460 on a £150,000 property.

8. Consider fee-free deals where the lender covers the cost of legal and valuation fees. The loan interest rate may be higher, but it can be particularly good value for loans under £100,000.

9. Don't ignore extras. Lenders charge for telegraphic transfer of funds, usually £25. They also charge a sealing fee when they close the mortgage account and release property deeds. It used to be £50. Many now charge £150. Abbey charges £300.

   Use http://www.thisismoney.com to compare remortgaging deals.

    
   
   

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