New customers only!
As mortgage lenders offer their best deals for new customers, remortgaging has become common place in the UK. The savings can be substantial, especially if you’ve got a large mortgage or are no longer enjoying any special introductory offer.
Will you pay a penalty?
The first step in remortgaging is to check to see what it will cost you to change lenders. If you’re on a fixed-rate deal for example, you’ll probably have to pay a charge which could amount to a few months’ interest. This could negate any savings you make by switching to a cheaper mortgage.
Mortgage companies also charge a standard fee for closing down a mortgage. These have been the subject of an investigation by the Financial Services Authority, due to significant increases in the amount being charged in recent years. The good news is that mortgage lenders have backed down with many of them reducing the amounts they charge.
If you’re unsure how to calculate any redemption penalty on your mortgage, then a quick call to your mortgage lender will be required and they should be able to give you the information relatively quickly.
Search around for a cheaper deal
The second step in the remortgage process is to hunt around for a cheaper deal elsewhere. Mortgage companies are always looking to attract new customers so finding a cheaper rate shouldn’t be difficult. Most companies will offer slightly different deals for remortgages and for house movers.
Be aware that if you do switch mortgage lenders, you might have to pay for legal fees and a valuation. Some companies will offer to refund this money, if you do end up switching to them. You need to watch out for arrangement fees too – many of the cheapest deals carry fees of over £1,000, which makes them less attractive to those who have smaller mortgages.
Try your current mortgage lender
Having found a better deal, it’s time to go back to your current lender. Usually, they will want to keep your business and may make you an offer, such as switching you to one of their own cheapest deals.
This can often be the best way to go, as it means less paperwork for you and also avoids the cost of legal fees and a valuation that you’d suffer if you’ve switched mortgage lenders.
Make the switch
Once you got the best offers you can get from both your current lender and from the wider market, it’s time to decide. Weigh up the total cost of switching (redemption penalties, exit fees, legal fees and valuation) against the amount you save each month.
To do this accurately, make sure you’re comparing like with like. So, if you have a repayment mortgage with 20 years left to run for example, you can’t compare the monthly payments for this against the payments for a new mortgage that lasts for 25 years.