Remortgaging

The basic rules that could save you thousands

Your current deal
Before you start you need to establish exactly where you stand at the moment. You've probably got a fair idea of the amount you're paying each month but you also need to know what the interest rate is you are paying and how much is outstanding on your mortgage.

If your mortgage is relatively new you may be tied into a special rate deal. Often there are penalties for moving mortgages while you're in this honeymoon period. Some lenders even charge redemption penalties after the special rate has ended. So you need also need to find out these details.

Finally, many lenders also charge a fee for the standard closure of a mortgage (on top of any redemption penalties). In fact, many have hiked these fees recently in an attempt to dissuade people from moving their business elsewhere. You'll also have to include these costs in your sums.

New deals
If you're paying your lender's Standard Variable Rate, as most people with a mortgage are, you probably paying around two percentage points more in interest than the cheapest deals on the market. In other words, on a £100,000 mortgage, you could be paying £2,000 more each year in interest than you need to.

The cheapest rates are usually available to people with low 'loan-to-value' rations (LTV for short). Divide the current amount outstanding on your mortgage by the estimated value of your home to calculate your LTV rate.

Unfortunately, you'll probably have to pay some fees to switch to a new mortgage. There's likely to be an application fee for a new mortgage (which could be £500 for the cheapest deals on the market), plus legal and valuation fees.

Compare like with like!
Obtain quotes from a shortlist of two or three lenders and then compare them to your existing deal. If you have a repayment mortgage, rather than an interest-only one, you have to make sure you're comparing like with like. If you have 20 years left to run on your current deal then you need to compare this with a new 20-year deal. If you compare it to a new 25-year mortgage you'll get a false impression of how much you'll save and end up taking five more years to pay off your mortgage.

Get your sums right
You'll need to add up the costs that will charged by your current borrower plus those you'll incur for a new mortgage. Let's say they are £500 apiece, meaning your total switching cost is £1,000. You'll notice that many of the fees associated with moving mortgages are the same, whatever size loan you're after. This means you are far more likely to save money if you have a larger mortgage.

Now you need to compare this total to your monthly saving. The cheapest mortgage deals often only last for two or three years so there will come a time when your special deal comes to an end and you may have to consider remortgaging again. Depending on how cumbersome you find the whole process you may want to go for a five-year deal instead. Although you'll save a bit less each month you may end up better off as you won't incur remortgaging costs as frequently.

It’s good to talk
Now you know how much you can save it's a good idea to talk your current lender. They'll still want your business so they may be prepared to offer you a lower rate. In fact, they may even be prepared to switch to one of their cheaper deals without charging you all the additional fees that you'd normally pay.
If they won't, or if switching to a new lender would save you even more money, then it's time to leave your existing lender behind.

Financial freedom
To save yourself even more money in the long run, you could find yourself a cheaper deal but aim to pay the same amount of mortgage each month as you are at the moment.
What's the point of that you may ask? Well, doing this with a lower interest rate will mean that you could pay off your mortgage a few years earlier and potentially save thousands of pounds in interest payments.

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