Remortgaging can save cash

Switching your home loan lender need not be a headache
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The Independent Online

Mention remortgaging to the majority of people and they'll throw their hands up in horror at the very thought. Take on more debt? Why would anyone want to do that?

Mention remortgaging to the majority of people and they'll throw their hands up in horror at the very thought. Take on more debt? Why would anyone want to do that?

But in many cases remortgaging could save you money by reducing the monthly payments on your loan. Research from internet bank Egg reveals that half of all homeowners - some six million people - are paying the standard variable rate on their mortgage. This is typically in the region of 7.74 per cent, even though there are a range of discounted and fixed rates available, most of which are a couple of per cent lower.

The good news is that homeowners are beginning to realise that they can get a better deal if they shop around - and that it isn't as much hassle as you might think. According to Portman Building Society, the remortgaging market was worth £6.7bn in the first quarter of this year, with 113,000 people moving their home loans. Two years ago, the remortgage market was worth £4.2bn, covering just 82,000 loans.

"We are seeing more people prepared to go through the process of moving their mortgage than they were a few years ago," says John Gully, group communications manager at the Portman. "Lenders are coming out with special deals and rates all the time, and borrowers have an increased awareness that they can save significant amounts by moving their mortgage."

In the current economic climate, home owners can save far greater sums by switching loans than they could, say, 10 years ago. This is partly owing to the greater variety of mortgages available and also that we are borrowing more as house prices escalate. So, whereas half a percentage point didn't make much difference on a £20,000 mortgage, on a £150,000 loan, it's quite considerable.

When deciding if you should remortgage or not, much depends on whether you are tied into your loan with redemption penalties. "It might still be worth moving even if you are," says David Hollingworth, mortgage adviser at London & Country Mortgages. "You have to assess it carefully because if you have to fork out for redemption penalties, you might not get that money back in the longer term."

London & Country and mortgage broker John Charcol both offer a free service which quickly calculates whether it is worth switching - even with redemption penalties. It takes into account your loan size and works out what kind of rate you would need to make it worth your while to switch.

When choosing a new loan, Mr Hollingworth advises that you remember to take into account any arrangement fees, valuation fees and legal costs involved in switching, which could add several hundred pounds to your bill.

A few lenders don't make any charges. Cheshire Building Society pays all the fees on a two-year discounted loan of 1.75 per cent, giving a payable rate currently at 5.74 per cent. Halifax offers two- and five-year discount tracker mortgages, guaranteed to be 0.05 per cent below the Bank of England's Base Rate, giving a current payable rate of 5.95 per cent. National Counties Building Society has a three-year discount, with a a slightly higher payable rate of 5.99 per cent.

But it is well worth getting expert advice as it may be in your interest to pay valuation fees and get a lower rate over the term of the loan if you have a very large mortgage.

If you decide to buy your way out of your current mortgage by paying redemption penalties, make sure you don't make the same mistake again. Mr Hollingworth warns: "Whatever you do, don't tie yourself in beyond the end of the discount period on your new loan."

* Contacts: John Charcol, 0800 718191; London & Country, 0800 373300

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