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Remortgaging – Can It Save You Money?

Some people change mortgages to get the best mortgage deal and save money; others are using it as a way to get some extra cash.

Can remortgaging really save you money?

It depends on your circumstances, but more than half of UK borrowers are paying more than they need on their mortgage each month. Borrowers often get stuck on the lender’s standard variable rate (SVR) which is usually the highest rate the lender offers.

Behind the headline interest rates that providers advertise, mortgage providers have been raising mortgage fees where they can. Mortgage arrangement fees have rocketed in recent months, as have the charges for early redemption. You need to work with the figures to ensure that are not losing out through high charges.

It may seem trick, but there are advisers who can help, but be careful who you get your advice from as they may be tied in to providers, or charge fees. Ask before you start.

Do some research of your own: look at the terms and conditions of your existing mortgage. Check for any tie-ins on your mortgage deal and early redemption. These be a key factor in whether it is worth switching to a new interest rate or waiting for the penalty fee time period has expired.

You may have a sense of loyalty towards your lender, but they do not reward such loyalty by any reduction in interest rates. Therefore you should shop around and look at other lenders to make sure you get the best deal.

Remortgages can also be used to borrow more money than before as your home may have gone up in value and now be worth a lot more than you previous mortgage amount. This is called equity release.

It is important to treat it with care. It is like taking out a personal loan, but with cheaper interest rates, but the downside is that a mortgage debt is secured – by your home – so that if cannot keep up repayments, the lender may repossess your home.

When considering a remortgage you are faced with a number of different mortgage types: fixed, discounted, capped and flexible. All have good points and should look at them carefully in light of your own circumstances.

You should certainly avoid extended tie-ins, which is where the redemption penalty time period goes on longer than the deal period. It is important to read the small print and don’t ignore it in favour of a seemingly attractive headline rate.

To start the remortgage process, you will need a redemption statement from you current lender, which will tell you how much you still owe. Then you will apply to your new lender. Your house will need to be valued, and you will have to go through the process, including legal work. These services all carry fees, so make sure you include them all in your calculations, and make sure the benefits outweigh the charges.

The whole process need only take about a month, and your new lender should liaise with your previous lender to get you remortgaged as soon as possible.

Tom Smith
17th July 2007

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