Could remortgaging save you money?

Since the Bank of England reduced its base interest rates, many mortgage lenders have starting offering fixed rate mortgages at low rates. This is good news for existing homeowners who can switch to a lower rate mortgage in order to save on the monthly mortgage payments.

The Council of Mortgage Lenders’ latest figures show that in December 2016 there was a 7% increase in remortgages compared to December 2015. There are two main reasons for this increase:

• With many low interest rate mortgages available, people are switching mortgages to save money.
• Homeowners fear that interest rates will rise soon, so are eager to find a fixed rate mortgage that will mean that their payments will not rise for a set period. Indeed, the number of five-year fixed rate mortgages has risen sharply from 11% of all mortgages in 2015, to 23% in December 2016.

How much can you save?

The amount you can save through remortgaging obviously depends on the size of the original mortgage and how much you have already repaid.

An example of saving is when you switch a mortgage of £150,000 from a 5% mortgage to a 2.5% one. In this example, your monthly repayments could be cut by about £200.

What about fees?

Before considering remortgaging, you need to do your calculations carefully to make sure that you will actually save money. There are several fees that you may need to pay, so these need to be taken into account when calculating how much you can save:

• Exit fees will apply for paying off your existing mortgage early. This can be paid in full, or added to the amount you are borrowing on the new mortgage so that they are paid of gradually.
• There is also a legal fee charged to forward the title deeds to a solicitor. This may have already been collected at the start of your existing mortgage, or it may be due when you exit the mortgage.
• Most mortgage lenders charge an arrangement fee too, which can be paid when taking out the loan or added to the loan.
• Some, but not all, lenders will charge a booking fee of between £100 to £200 to secure a fixed rate loan. This is paid up front and cannot be added to the amount borrowed.

Not just for reducing payments

Remortgaging is not just about bringing your mortgage payments down; if you have some equity available in the house, you can increase the value of the loan. The money could be used to pay off other debts such as credit card bills and loans, or to finance house refurbishments or build an extension bedroom if the family grows due to the arrival of a baby.

How to remortgage

There are many mortgage providers who offer fixed rate mortgages at an attractive rate. Price comparison websites can help you compare deals, and seeking the help of a mortgage broker can be useful for advice in finding the best deal to reduce your monthly mortgage repayments.



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