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Remortage

Remortage

Category: Mortgages

Updated: 31/10/2008
First Published: 04/10/2006

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

A mortgage is usually the biggest financial commitment any of us will make. Like any financial product, rates and offers vary and looking to remortgage may prove a worthwhile exercise.

Most people will take out a specific deal with a mortgage lender for a certain amount of time. Once this deal ends we will move onto our lenders' standard variable rate. This standard variable rate is usually higher than many products on offer. Standard variable rates are around 6.5% at the moment. However, rates of around 5% are readily available. On a £150,000 repayment mortgage over 25 years, at a rate of 6.5% monthly repayments would be £1012.81. At a rate of 5% they would drop to £876.89, a saving of £135.92 a month or a massive £1631.04 a year.

Even if you are not on your lender's standard variable rate, it is still a good idea to check how competitive your current deal is. When comparing this with other mortgage products, you should consider whether there is a penalty for repaying you existing mortgage early as this could wipe out any potential saving. You can get a redemption statement from your current lender that will tell you how much you owe and how much it will cost to repay your mortgage early.

Remortgage Fees

You also need to consider whether there are any fees related to taking out a new mortgage. Many mortgage providers now offer specific remortgage services that include free legal fees and arrangement fees.

Remortgage Types

The type of mortgage you want is an important factor when choosing a new mortgage. Fixed rate products are available over different terms. With a fixed rate mortgage you know exactly what your monthly repayments will be which can provide great security. However, if rates fall in the market, you will not benefit.

A capped rate mortgage has a maximum interest rate for a given term. The interest rate you pay cannot go higher than the agreed capped rate mortgage. This means you know the maximum amount your monthly repayments could rise to. However, if the basic interest rate falls below the capped rate, repayments will also reduce.

A variable rate mortgage is one in which the amount you repay increases or decreases in line with any interest rate changes. This means that you cannot predict the monthly cost of the borrowing. In times of falling interest rates, variable rate mortgages are beneficial, as your mortgage repayments will reduce. However, if interest rates rise, then so will repayments.

Remortgage Application

You will have to go through the mortgage application process when switching mortgages and so will need to provide proof of income, identity and mortgage statements. The new lender values you home and if they are happy with the value and condition of the home and your financial situation, will give you a mortgage offer. Remortgaging usually takes about a month to complete.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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