Here are ten things that you need to know about remortgaging.

1 No excuse for apathy
According to Charcol, over the past three months half a million homeowners have squandered £369 each by delaying a switch from their lender’s standard variable rate (SVR).

Many borrowers assume that SVRs fall with the base rate, but some lenders do not pass on the full cut.

2 Complacency costs
Some consumers are sitting on their hands when they could make great savings.

For example, an interest-only, £100,000 loan on an SVR of 6.5 per cent costs £542 a month. A switch to a two-year fixed rate at 4.28 per cent could reduce the cost to £357 a month.

3 To fee or not to fee
Remortgaging can incur arrangement, valuation, legal and administration fees, but there are deals that pay some of these costs for you.

4 Fees can cut costs
Few things in life are really free, and fee-free deals tend to carry rates that are up to a quarter of a percentage point higher than products where you pay the costs. The larger your loan, the more cost-effective it could be to secure the keenest rate and pay the fees.

5 Redemption penalties
These are charged when you change a mortgage during any offer period, but some lenders charge beyond this. Penalties can cost thousands, so work out yours before switching.

6 Don’t fixate on base rate
Trying to second-guess the Monetary Policy Committee by waiting for rates to fall further before switching is not a good idea unless you are a confident economist (and plenty of these get it wrong).

7 What’s important?
Do you want the stability of knowing what your repayments will be by opting for a fixed rate? Would you be happier taking a chance that rates will remain stable or come down by selecting a mortgage that tracks the base rate? Mortgages that offer a discount on the base rate are usually cheaper than fixed-rate deals.

8 It’s no big deal
Remortgaging typically takes between four and six weeks. There is the misconception that remortgaging takes up too much time and effort, but it is relatively painless for most people and should not take more than two hours of a borrower’s time.

9 Getting advice
With thousands of mortgages available, asking an expert to find the most suitable one for you makes sense.

10 Do you need the equity?
It can be tempting to cash in some of the equity in your home to pay for anything from home improvements to holidays. This is a cheap way to borrow, compared with credit cards and personal loans, but taking out a large chunk of cash and paying it back over the term of your mortgage means that you could pay back a lot of additional interest.

Article date: July 2006

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