Save thousands on your home loan

If you have spare cash then go for a remortgage, says Isabel Berwick

MOST of us just pay the mortgage each month and forget about it. But if you have a little spare cash then you should think about two relatively straightforward changes.

The first step is to see if you would save money by swapping to a cheaper loan with another lender. If that doesn't appeal - or you are locked into a special deal which charges a cash penalty for early exit - then you may be able to make extra payments into your existing mortgage, on a monthly basis or with lump sums.

If you can take both steps, you should save thousands off your loan.

Simon Tyler, managing director of independent mortgage broker Chase De Vere, says: "Any borrower who is currently paying the variable rate, with no financial penalties charged for moving lender, would be well advised to consider switching lender today to make an immediate saving in cash flow before Christmas."

If you are looking for a remortgage deal, you have two choices. The first is to opt for another variable-rate deal, but choose one that is run as a flexible or lower-cost mortgage.

The other option is to remortgage to a fixed rate to improve cash flow over the next two or three years. You could then invest any spare cash you would have spent on the mortgage, and get a higher rate of interest than you are paying on the loan. At some point in the future, you could pay off a lump sum.

Some fixed-rate mortgages allow you to make regular over-payments and/or pay in lump sums. Among the lenders allowing this are Bristol & West, Northern Rock, Woolwich, Skipton and Norwich & Peterborough. Check how often the capital owing is recalculated.

If it is done on an annual basis you should only make extra payments at the end of the year. (A big advantage of flexible deals is that they recalculate capital daily or monthly, so you always pay interest on what you actually owe.)

Because interest rates are on the way down in the long term, it is probably not worth taking out a fixed rate for longer than three years. Borrowers looking for a five-year deal should consider capped rates. These guarantee you won't pay too much over the odds for your mortgage - and you will make modest savings if rates fall.

If you have a variable-rate mortgage you will be paying around 8.9 per cent today; a switch to, say, 6 per cent could save you around pounds 120 a month. You have to set your remortgaging costs against that. If you pick a deal with no "sweeteners" for those swapping from another lender then you will have to pay around pounds 1,000 to change your mortgage - assuming you are not locked into an agreement which charges a penalty for early exits.

Mortgage experts suggest that you should bear in mind the size of your loan before you pick a remortgage. Anyone with a loan of pounds 100,000-plus should consider paying full fees to get a lower interest rate, on the basis that you will claw back the costs very quickly by making big savings on mortgage payments. If you have a smaller loan, it is much more important to keep the cost of remortgaging down.

But check the redemption penalties. These keep you paying standard variable rates - potentially for several years - after the special offer ends. Customers are usually charged six

months' interest payments or 5 per cent of the original loan to get out of the deal.

In the medium term we may see the end of this practice. The Council of Mortgage Lenders is planning to tighten the rules on lending so that there is no chance anyone could be taken by surprise by the "lock in" clause at the end of a special offer period.

However, if lenders are forced to be more upfront about the details in their small print, they will probably put together deals with less attractive headline interest rates.

Flexible mortgages are an interesting new alternative and look likely to take the remortgage market by storm over the next few years.

What started as an innovation by Legal & General in 1995 is now offered by more than 20 lenders, including some of the big traditional names.

All of these deals offer you the chance to vary the repayments you make on your loan. If you can overpay, through lump sums or regular payments, then you will save thousands of pounds and cut years off your repayment term.

News
Jeremy Paxman has admitted he is a 'one-nation Tory' and complained that Newsnight is made by idealistic '13-year-olds' who foolishly think they can 'change the world'.
peopleThe idea has been greeted enthusiastically by the party's MPs
News
Michael Buerk in the I'm A Celebrity jungle 2014
people
Arts and Entertainment
Avatar grossed $2.8bn at the box office after its release in 2009
filmJames Cameron is excited
Voices
File: David Cameron offers a toast during a State Dinner in his honour March 14, 2012
voicesAnd nobody from Ukip said babies born to migrants should be classed as migrants, says Nigel Farage
PROMOTED VIDEO
Arts and Entertainment
Stik on the crane as he completed the mural
art
News
Happy in his hat: Pharrell Williams
people
Arts and Entertainment
Stella Gibson is getting closer to catching her killer
tvReview: It's gripping edge-of-the-seat drama, so a curveball can be forgiven at such a late stage
News
Brazilian football legend Pele pictured in 2011
peopleFans had feared the worst when it was announced the Brazil legand was in a 'special care' unit
News
i100(More than you think)
Sport
Brendan Rodgers seems more stressed than ever before as Liverpool manager
FOOTBALLI like Rodgers as a manager but Liverpool seem to be going backwards not forwards this season
News
ebooksNow available in paperback
News
The Magna Carta
archaeologyContemporary account of historic signing discovered
News
Phyllis Dorothy James on stage during a reading of her book 'Death Comes to Pemberley' last year
peopleJohn Walsh pays tribute to PD James, who died today
Sport
Benjamin Stambouli celebrates his goal for Tottenham last night
FOOTBALL
Life and Style
Dishing it out: the head chef in ‘Ratatouille’
food + drinkShould UK restaurants follow suit?
News
peopleExclusive: Maryum and Hana Ali share their stories of the family man behind the boxing gloves
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Argyll Scott International: Service Desk Analyst

£20000 - £22000 per annum: Argyll Scott International: Service Desk Analyst Re...

Argyll Scott International: 2x Service Desk Analyst

£20000 - £22000 per annum: Argyll Scott International: Service Desk Analyst Re...

Recruitment Genius: Senior Execution Trader

£30000 - £250000 per annum: Recruitment Genius: A global Rolling Spot FX, Comm...

Citifocus Ltd: ACA - Financial Reporting

£Attractive Package: Citifocus Ltd: Chartered accountant (ACA or CPA), must be...

Day In a Page

Homeless Veterans Christmas Appeal: ‘We give them hope. They come to us when no one else can help’

Christmas Appeal

Meet the charity giving homeless veterans hope – and who they turn to when no one else can help
Should doctors and patients learn to plan humane, happier endings rather than trying to prolong life?

Is it always right to try to prolong life?

Most of us would prefer to die in our own beds, with our families beside us. But, as a GP, Margaret McCartney sees too many end their days in a medicalised battle
Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night - is that what it takes for women to get to the top?

What does it take for women to get to the top?

Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night and told women they had to do more if they wanted to get on
Christmas jumper craze: Inside the UK factory behind this year's multicultural must-have

Knitting pretty: British Christmas Jumpers

Simmy Richman visits Jack Masters, the company behind this year's multicultural must-have
French chefs have launched a campaign to end violence in kitchens - should British restaurants follow suit?

French chefs campaign against bullying

A group of top chefs signed a manifesto against violence in kitchens following the sacking of a chef at a Paris restaurant for scalding his kitchen assistant with a white-hot spoon
Radio 4 to broadcast 10-hour War and Peace on New Year's Day as Controller warns of cuts

Just what you need on a New Year hangover...

Radio 4 to broadcast 10-hour adaptation of War and Peace on first day of 2015
Cuba set to stage its first US musical in 50 years

Cuba to stage first US musical in 50 years

Claire Allfree finds out if the new production of Rent will hit the right note in Havana
Christmas 2014: 10 best educational toys

Learn and play: 10 best educational toys

Of course you want them to have fun, but even better if they can learn at the same time
Paul Scholes column: I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season

Paul Scholes column

I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season
Lewis Moody column: Stuart Lancaster has made all the right calls – now England must deliver

Lewis Moody: Lancaster has made all the right calls – now England must deliver

So what must the red-rose do differently? They have to take the points on offer 
Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

Sol Campbell cries foul at Labour's mansion tax

The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

Sarkozy returns

The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
Is the criticism of Ed Miliband a coded form of anti-Semitism?

Is the criticism of Miliband anti-Semitic?

Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

Ouija boards are the must-have festive gift

Simon Usborne explores the appeal - and mysteries - of a century-old parlour game