Why pay more when you can remortgage?

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The Independent Online

More than seven million homeowners are paying too much for their mortgages, according to research from NOP for the Mortgage Guild, the body representing mortgage brokers. The survey found it is ignorance and fear that puts borrowers off seeking remortgages that will typically save them £138 monthly.

More than seven million homeowners are paying too much for their mortgages, according to research from NOP for the Mortgage Guild, the body representing mortgage brokers. The survey found it is ignorance and fear that puts borrowers off seeking remortgages that will typically save them £138 monthly.

The term "remortgage" causes confusion. Many people think it means seeking an extension of an existing mortgage to raise more money, or an admission that a borrower cannot meet the existing terms of an agreement. Homeowners also often wrongly believe that moving to a new mortgage will involve them repaying over a fresh 25-year term.

The reality of remortgages for most home-owners is the switching from a current and over-priced mortgage to a better deal. In some cases this will halve the cost of repayments. The duration of a remortgage will usually be the same as that of the existing mortgage, but it may not be worthwhile where a mortgage has less than 10 years left to run.

You can remortgage equally easily if you already hold a repayment or endowment mortgage. You can make the biggest savings on endowments because interest forms a higher proportion of the cost. If you are paying standard variable rates - typically if you are more than five years into a repayment - you can expect to make substantial savings by remortgaging. "Anyone who is paying standard variable rate is paying too much," says Simon Jones, associate at Savills Private Finance. "There are plenty of opportunities to pay sub-bank base rate [6 per cent] at the moment." More and more homeowners are learning about the opportunities. "Eighty five per cent of our business now is remortgaging," says Nick Carnill, general manager of Cavendish Finance. "These are people looking for a better rate or getting collateral out of their house. They have perhaps been in their homes for 10 years, started out on standard variable rate and their mortgage lender is not going to tell them there is a better rate out there."

There are many mortgage brokers who can find remortgage opportunities that should greatly cut your interest costs. Some charge a fee, others only charge for face-to-face meetings, and others are fee-free - earning income from commissions on sales - check first. Brokers have access to hundreds of mortgage products, rather than just the own-brand products sold by a mortgage lender. Some - including the supermarket Tesco, which has recently moved into the market - have negotiated their own special deals with lenders.

But, suggests Mr Carnill, it is worth first phoning the existing lender to ask whether it will cut interest rates to keep the account. Borrowers often fear the hassle and cost of remortgaging, but the process is simple and cheap, says Steve Herbert, a partner at Select Mortgages and Loans. "There is a large amount of the population still sceptical, thinking it's a rip-off," he concedes. "They worry about tie-ins, and often say, 'I've been with this lender for 25 years and they have never done wrong by me' - well they have if they charge the standard variable rate." In one contract, Mr Herbert saved a client £9,103 on a £289,000 remortgage.

The warning is that the best headline deals may not be the cheapest over the longer term. Chorley & District Building Society, for instance, offers a remortgage which charges just 1.3 per cent - for the first six months, before rising to 5.8 per cent, then 7.05 per cent and eventually 7.2 per cent. There is a tie-in and a payback if the borrower moves early.

Despite the low initial costs there are cheaper alternatives. The most popular product at the moment with Select's clients is a remortgage product from the Halifax, with a discount of 0.45 per cent off the Bank of England base rate - the present rate is 5.55 per cent - until the end of 2002. Valuations are free, there are no completion fees and legal costs are met by the bank. There is no tie-in. The downside is that it is not available to those repaying Halifax mortgages. Instead, the Halifax reduces its mortgage interest rate according to how many other Halifax products customers also have.

Cavendish Finance: 0800 279 3000; John Charcol Brokers: 0171 611 7000; Mortgage Guild: 0870 774 7774; Savills Private Finance: 0207 330 8500; Select Mortgages: 01792 850132; Tesco: www.tesco.com/finance/mortgages/mortgages.htm; VirginMoney: www.virginmoney.com

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