Remortgage fast or pay the price
Friday, 25 May 2007 16:56
Remortgage fast or paying through the nose
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Anyone with a discount of fixed-rate mortgage deal close to expiring needs to act fast to avoid paying through the nose.
This is because after May's base rate hike, many standard variable rates (SVR) - the interest rate you are moved to after your introductory period expires - are as high as 7.75 per cent.
This is well above the cheapest deals on the market, and with that large a discrepancy in rates waiting even a single month to remortgage can cost you hundreds of pounds.
"If the discount or fixed deal on your mortgage is about to come to an end you might have a nasty shock in store as lenders' SVRs have gone up considerably since you took your mortgage; typically more than a one per cent increase in just the last year," said Katie Tucker, product specialist at online mortgage broker Charcol.co.uk.
"The process of remortgaging can be seen as a real chore to some homeowners and many often leave thinking about it to the last minute and end up paying more than they need to."
Charcol figures show staying on the SVR for a month could cost you £147 in pure interest alone (on a £100,000 mortgage).
On a £250,000 mortgage the monthly cost of not re-mortgaging is £450 - adding up to £5,400 a year.
But people should not simply sign up as fast as they can to the cheapest rate they see, as there are other costs to consider as well.
"Whilst speed is of the essence for those approaching the end of their deal - or already paying their lender's SVR, it is vital that no details are missed," Ms Tucker explained.
"It is really important to consider all elements of the process to ensure that the mortgage they move to is the most suitable for them."
Charcol's guide to getting the best value when re-mortgaging
Be prepared and think ahead:
Allow two to three months to investigate and apply for your remortgage so it is ready in time for the expiration of your early redemption charges.
See what alternatives your existing lender can offer. Remember to ask how much your exit fee will be. The average is currently around £225.
Consider the term and features you need on your new mortgage:
Work out what really matters to you: is it the total cost over the next few years, having free valuation and legals, or just a low rate.
Could you pay a little bit more each month to reduce the term?
Do you want to raise cash to consolidate debts or make improvements on your property?
Do you have savings that may suit an offset account?
Take to opportunity to review your insurances:
If you are changing the loan amount of your mortgage you may need to top up your life assurance or critical illness policies.
If you have changed job or given up smoking this could also affect your cover needs and premium.
Make your application:
At this stage you should seek advice to ensure you find the best mortgage deal for you.
You will usually need to present one form of ID, and verification of your address and your income.
Contact a remortgage solicitor:
If your deal does not include free legal services, you will need a solicitor, likewise if you need non-standard legal work (such as a person going on or off the mortgage).
Remortgaging is a simple process and does not require the same skills as for a purchase transaction. A solicitor who is cheap but efficient should suffice.
Make sure they complete on the right day – the last thing you want is to be inadvertently made liable for early repayment charges.