Your Money Loans: Remortgage and relax?

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The Independent Online
The biggest monthly expense for most households is the mortgage payment. So if you are looking for ways to reduce or control your monthly outgoings, this is the place to start.

There are a number of reasons why you may want to change your mortgage; you may want to reduce your monthly payments over the next few years so you have more money to finance your child through university. If you have just started a family and your budget is tight, you may want to fix your monthly mortgage payments over the next few years.

The remortgage market now accounts for around 25 per cent of all mortgage business. Unable to attract many newcomers to the market, lenders have been working hard to attract new business from people who are not moving house.

Fixed-rate mortgages are particularly popular, especially now that interest rates are starting to move up. Act now and it is still possible to lock into a competitive rate to freeze your monthly payments. Several lenders are offering attractive fixed-rate remortgage deals over two and three years or more.

Chelsea Building Society offers a fixed-rate mortgage of 4.99 per cent to October 1998. On an interest-only basis with Miras relief, this means a monthly repayment of pounds 189.20 on a pounds 50,000 mortgage. Compared with pounds 265.04 on its standard variable rate of 6.99 per cent, this represents a monthly saving of pounds 75.84. Over the 23-month period, the fixed-rate mortgage would provide a saving of pounds 1,744.32.

Locking into a fixed-rate mortgage now makes a lot of sense, says Celia Rowland at the Halifax: "Interest rates have been at their lowest levels for 30 years. We've just had a base rate rise and we expect further rises. We predict it will go up to around 7 per cent during 1997 which will have an effect on mortgage rates. We expect mortgage rates to be around 8 per cent by the end of next year."

Another way to reduce your monthly payments is to take a discount remortgage deal. This is where the lender offers a discount off their standard variable rate for a set period of time. Typically discounts are between 1 and 3 per cent over two or three years. Another option is a "cashback", ie a lump sum in cash instead of a discount.

Before you rush off to remortgage, there are a number of things you should consider. First, check if there are any redemption penalties on your existing mortgage. You may find you have to stay with your present arrangement for a set number of years if you are to avoid paying a redemption fee of up to six months' interest.

If your mortgage is from one of the building societies planning to convert to a bank next year, you may want to put off remortgaging until after the conversion, so as not to miss out on any windfall.

Couples who took out a joint mortgage before August 1988 should check with any potential new lender if they will lose their double Miras tax relief if they change mortgages. You also risk falling foul of the Government's new restrictions on the payment of mortgage interest in the event of losing your job.

Remortgaging is similar to applying for a mortgage. The new lender will want to assess your ability to pay a mortgage and ensure your home is worth the amount you are borrowing. You have to fill in a detailed application form and you will have to pay for the usual expenses incurred when taking out a mortgage such as solicitor fees, surveyor fees - and a mortgage indemnity premium if you borrow more than 75-80 per cent of the property's value. This can add up to hundreds, even thousands, of pounds.

If you take out a fixed-interest remortgage package, you should check how long you will have to stay with your new lender. While the rate may only be fixed for two years, you may have to stay with the lender for five years if you are to avoid any redemption penalties.

Not all lenders insist on this. Some are offering fixed-rate schemes which you can leave at any time, even during the fixed-rate period. But these rates tend to be slightly higher than the lender's current standard variable rate.

Discounts are a great way of reducing your monthly payments, but again there is a downside. Your lender may ask for the discount back if you do not stay with them after the discount period has run out.

You don't have to go to a new lender to remortgage. Some lenders have schemes for existing customers. The rates usually are not as good as those offered to new customers, but you will not have to prove your credit worthiness or the value of your home. Instead of having to pay legal fees, mortgage indemnity premiums or a surveyor's fees, the only cost is likely to be a transfer fee that could be as little as pounds 200.

Competition in the mortgage market remains intense, so there are plenty of good deals around although these change frequently. Keeping track of who is offering what and which deals may be best for you is no easy business. The Money pages of Saturday's Independent, The Independent on Sunday and specialist magazines all provide information on the latest offers.

Abigail Montrose

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