Remortgaging may be one of the kindest things you can do for your bank account. Not convinced your mortgage is a winner? A remortgage could save you hundreds, if not thousands of pounds. Depending on its size, a bad mortgage could be costing you hundreds or even thousands of pounds a year. In fact, remortgaging is often the most effective way you can save yourself a substantial amount of money. Check out your current deal Before you start you need to establish exactly where you stand at the moment. Many people don't know what interest rate they are paying or how much is outstanding on their mortgage. You can find this information by calling your mortgage company or checking your latest annual statement. 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. Lenders may also charge redemption penalties after the special rate has ended. So you 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 increased 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. Check out some new deals If you're paying your lender's Standard Variable Rate, 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. Compare the monthly costs Here's where you see how much money you could save each month. Get some quotes from a shortlist of two or three lenders and then compare them to your existing deal. Note that 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. Do your sums 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 could be more likely to save money if you have a bigger mortgage.) Now you need to compare this total to your monthly saving. If you consider you can save £200 a month then your remortgaging should pay for itself in just five months and from then on you may be £200 a month better off. Of course, 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. Go back to your current lender 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 play ball, or if switching to a new lender would save you even more money, then it may be time to wave your lender goodbye! Save yourself even more money! Here's one trick you can use to save yourself even more money in the long run. 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. This will potentially save you several thousand pounds more in interest and bring forward the joyful day when you own your own home outright. Article date: July 2006

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