loan search for homeowners

Don’t be forced into re-mortgage

Recent changes in the industry suggests that homeowners are looking to re-mortgage their homes to fixed rate deals in order to protect themselves against further rate rises. However, mortgage borrowers should not be panicked into switching their home loans because of the recent base rate rise and are instead being advised to stay with what they’ve got until the market settles.

The raft of additional costs involved in switching your mortgage and the current uncertainty means that many lenders are yet to announce their new rates. Mortgage providers are not shy to base rate increases and they are aware that an upwards move will trigger a high demand for fixed rate solutions to protect themselves against further increases.

By the time most borrowers have paid the various exit penalties, arrangement fees and ancillary professional charges, the new deal would have to be very attractive in order to make a move worthwhile. This does not mean that there are not very attractive remortgages out there. Given the charges and the time involved, borrowers should first speak to their current lender to seek out a new deal before thinking about moving.

Also, over recent months we have seen a shift in lenders’ attitudes to their borrowers which means that many lenders are now trying harder to retain their existing customers. Lenders have suddenly woken up to the fact that it is costly to constantly chase new customers whilst watching their loyal existing borrowers being welcomed with open arms by a competitor. Coupled with the fact that arrangement fees are at an all time high with lenders charging as much as 2.5 per cent of the mortgage amount up front and ever-increasing exit charges, this means that many borrowers are better off staying with their existing lender, even if the deal on offer is not the best on the market.

Borrowers determined to switch should firstly estimate the likely costs involved in moving the mortgage. These should include lenders’ arrangement fees, legal and valuation fees as well as exit fees and redemption penalties from their existing lender. Only if these sums really stack up should you consider moving to a new lender but you should also be aware of the hidden costs of switching lenders too. Getting an independent mortgage broker is probably the best place to start as they can look at your current situation and see exactly how much you could save by switching your lender.

An independent broker will take into account the related costs and fees associated with remortgaging, the size of your mortgage and whether you want a fixed or discounted rate deal. Please note that mortgage brokers often charge fee for their service. If you save money by remortgaging then the fee offers value if overall you save money. Remortgages can be attractive.

While the process seems easy enough and looks like you may end up with some spare cash, make sure you check what penalties might apply if you switch away from your existing lender. If you are in a fixed or discounted rate deal there may be early redemption penalties. On average it takes about four to six weeks to remortgage, depending on the lender, so you need to factor this in if you are coming to the end of another fixed rate or discounted rate deal and want a smooth transition. Using an online broker for remortgages can save time.

Switching financial products is always a risk business and borrowers should always make sure they are sure of their financial circumstances and are confident they will not change for worse before entering into any new agreements. Remortgaging you’re property should not be a rushed decision as while you could end up with a far better deal, you could also end up a lost worse off.  

The author is Melinda Varley who an experienced journalist currently specializing in articles for the financial field. Melinda has held several positions for magazines and newspapers both hard copy and online and both in the UK and Australia which is where she originates from.

This article was written on the 24th May 2007. This article does not represent ‘financial advice’ as each persons individual requirements will be unique to their needs. If there is something in the article which you which to rely on then please check those details with any person from whom you purchase a term life policy at the time of purchase.

The views in this article represent those of the author and not those of Netbasic Limited.