Remortgages explained

Most people find that the single biggest expense of their life is a mortgage. After all it is a giant loan taken out to buy a house, which involves borrowing, say, £100,000. Some people wrongly believe that once you are on a mortgage it’s impossible to change it, but the reality is you are free to switch to remortgages supplied by different providers if you feel you are losing out with your current deal. A few simple adjustments can even make someone over £100 a month better off.

Remortgages can be quite difficult to understand however, and this can put some people off researching the process properly. But to give an example if someone has a repayment mortgage of £100,000 pounds and is paying six per cent interest, switching halfway through a 25 year deal to a five per cent interest mortgage could save somebody a tidy sum of money. There is also nothing to stop someone switching more frequently, perhaps even every two or three years.

Not only can remortgages save you money they can also help to raise cash if your house has risen in value. Jumps in prices in the last decade mean people’s houses are still worth more than what they paid for them. So, remortgaging essentially involves putting the difference in your pocket.

Remortgaging can also be used by people whose circumstances have improved. Someone might be on a much better salary that when they took out the home loan, or may have inherited a large amount of cash. Maybe they want to increase their repayments but their current deal does not allow them to. Changing to a new home loan may help them do this.

A catch with remortgaging is that you will probably have to pay costs when you break off from your loan provider. Remember it is important to work out your figures and to make sure your new deal you will end up saving you more than you spend on changing it, otherwise there’s no point in the switch. In simple terms you are likely to have to pay a first fee to leave your existing provider, and also a fee for joining the new one.

Those on certain deals will have to pay early repayment charges, and may also have to pay a kind of release charge or mortgage exit administration fee. These are designed to cover administration costs, and have come under some scrutiny from the Financial Services Authority (FSA) - remember to check that what you are quoted to leave is the same as in the small print of your original mortgage wording.

Finally the arrangement fee for your new provider can vary from a few hundred pounds up to over £1,000. Some will let you incorporate the charges into the home loan, but remember this will also incur interest. Another thing to look out for with remortgages is whether or not your new provider will be prepared to pay your legal fees, which will apply even if someone doesn’t want to move house when setting up new product.

Featured Products

	Looking for a commercial mortgage?
	Save money with a flexible mortgage