Want to cut your mortgage repayments?
Did you know that you could substantially lower your mortgage repayments by switching lenders? If you are currently borrowing at your lender’s standard variable interest rate, a remortgage could save you thousands of pounds in interest payments over the life of your loan.
What is a remortgage?
A remortgage is the process of switching mortgage providers in order to obtain a more competitive interest rate and avoid being charged higher interest rates by borrowing at your lender’s standard variable rate.
Why remortgage?
The mortgage market is highly competitive. Lenders fight for market share by offering loss-leading products. These are basically mortgage products that are packaged up to look very attractive to new customers, consisting of a very competitive introductory rate for a set period, during which very little - if any - profit is made by the lender. This is followed by the highly profitable remaining mortgage period, when the interest rate reverts to the lender’s standard variable rate. Savvy borrowers can avoid paying over-the-odds interest rates by switching lenders each time their introductory period ends. This can massively reduce the interest charged on your loan over the mortgage term, and lower your total loan cost substantially.
How?
Remortgaging often will ensure that you are constantly borrowing money at a competitive interest rate. Remortgaging effectively takes dedication and a high level of organisation. The most important things to keep in mind include:
- Have yourself organised to remortgage as soon as your introductory offer expires, so that you avoid the higher interest rates;
- Find out from your current lender the exact fees and charges you will incur by repaying your mortgage early. Remember that there are also fees involved in taking out a new mortgage with a new lender, such as surveys, valuations and solicitor’s fees;
- Select mortgage products that allow you to remortgage without penalty at the end of your introductory offer. Most lenders charge an exit fee regardless, but some try to force borrowers to remain on the high standard variable rate by charging an early repayment fee that does not expire in line with the end of the introductory offer. This is called ‘over-hang’ and is best avoided.
What to be aware of
The most competitive mortgage products are available for borrowers who want to borrow less than 85-90 per cent of their home’s value. This means that if you are looking to remortgage, but have less than 10-15 per cent equity built up in your home, you might find it hard to secure a new deal with interest rates low enough to truly benefit from switching. In order to avoid this issue, opt for long-term deals to begin with, until you have built up enough equity to be able to take advantage of the most attractive offers available.
Please note: this website, and the articles and information within it are based on journalistic research. It does not and should not be construed to constitute financial advice. Any information should be considered in regard to specific circumstances. All tips are followed at your own risk and should be followed up with your own research. For more please refer to our terms and conditions of use.