Remortgaging - Switching Lenders Could Save Money By Colin M McDermott

Remortgaging is an important consideration for homeowners. If you're on a fixed-rate mortgage, you will probably want to consider remortgaging at the end of your fixed period, and even if you're on a variable-rate or other type of mortgage, you will probably want to consider remortgaging at some point.

In the right circumstances, remortgaging can be a great way of reshuffling your finances and potentially saving money. But according to a new survey by Cheltenham & Gloucester, many homeowners are unclear about what is involved in remortgaging.

The report's findings include:

One in three remortgagers do not realise they are able to switch to another lender
37 per cent of homeowners would not consider switching to another lender for fear of being rejected
30% would rather pay a higher interest rate than risk rejection by another lender
15% don't understand how mortgage lenders decide eligibility
44% are worried about the perceived scarcity of deals
38% worry they may not be able to afford their new rate
38% will spend less than half a day shopping around for a remortgage deal
27% don't want to tie themselves into a deal now when interest rates may fall at a later point


The findings would suggest that a lot of people are simply happy to stay with what they know - but Melanie Taylor, Head of Corporate Relations for Think Money, says that this means many people are missing out on some potentially significant savings when remortgaging.

"Mortgage deals are changing constantly, and especially in the current market where mortgages are being offered much less frequently, some lenders are being very competitive," she said. "By remortgaging, homeowners can often make large savings on their monthly payments.

"Remortgaging should be treated in the same way as when you first took out your mortgage. Take your time to look at the market, look for the best deal, and go with that deal. Just a difference of half a per cent on your interest rates can make a noticeable difference to your outgoings."

The figures speak for themselves. On a mortgage of £120,000 with a fixed 7% interest rate, monthly payments come to £858.10. Take the interest down to 6.5%, and your monthly payments are £819.81 - a saving of almost £40 per month, or £480 per year.

Taylor said: "Remortgaging is particularly important to those on fixed-rate mortgage deals, since at the end of the fixed-rate period, the interest rate usually switches to the lender's SVR (Standard Variable Rate), which can potentially be higher than the fixed-rate.

"Variable-rate mortgages can often be cheaper than fixed-rate mortgages, but there is an element of risk involved, because the rates can go up at any time and this can make monthly payments much more expensive."

Remortgage: quick tips

Plan ahead. Don't leave looking for a remortgage too late. Ideally, you should leave at least a few weeks to look over the market and ensure you know where to find the cheapest deals. 
Find out all the costs involved. Most fixed-rate mortgages will carry arrangement fees, which can prove to be expensive, although sometimes these can be added onto your monthly payments. Also consider additional services such as PPI (Payment Protection Insurance) - this can be a lifesaver in certain situations, but it can add a noticeable amount to your monthly payments. 

Avoid mortgages with annual interest.

Some lenders calculate your interest payments on the amount owed at the beginning of the payment year, meaning you will pay a relatively high amount of interest through out the year. Mortgages with daily interest charges calculate interest based on how much you owe at any given time, meaning you are technically paying off more of the mortgage. This can result in paying off your mortgage several years earlier compared with a mortgage charging annual interest.
Think Money (http://www.thinkmoney.com) are a financial solutions company based in Salford Quays, Manchester. The company specialises in a range of financial services, including remortgages, mortgages and mortgage advice.

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