Should I remortgage?
A mortgage is a long term commitment – typically you won’t be free of monthly repayments for 25 years. But that doesn’t mean you should neglect this area of your personal finances in the short term – you may not be able to get rid of your debt, but you can make sure you’re always getting the best possible deal on it. Make sure to compare typical remortgage rates .
Depending on your circumstances, remortgaging could save you serious amounts of money. You won’t always be able to find a cheaper deal, but if you don’t at least consider remortgaging regularly – say once a year – there’s a chance you’re missing out on the opportunity to reduce your repayments or the total cost of the loan.
Remortgaging simply means replacing your current home loan with a new mortgage – you may not even have to move lender to do it, though you certainly shouldn’t be afraid to move if doing so makes financial sense.
Working out whether it will pay off to remortgage is a matter of doing your sums.
For people not currently locked into some sort of special mortgage deal by penalty charges – typically you will be free if you’re currently on their lender’s standard variable rate – the maths are relatively straightforward.
First, work out what the total cost of the loan, in cash, you are considering would be over a defined period – the term of the fixed, discounted or tracker rate mortgage to which you might switch Our mortgage repayment calculator can help you to do this. You’ll have to make the calculation assuming there will be no change in interest rates and you must also add in any fees your new lender will charge – arrangement costs, for example, or levies for legal work.
Once you’ve worked out the cost of the alternative mortgage, do the same sums for your existing product. Again, assume rates will remain constant and add in any administration fees payable in the event of early repayment (which is effectively what the money from your new mortgage will be used for). If the numbers are in the new deal’s favour, make the switch.
Early repayment charges
If you’re currently on a special mortgage deal, it may still be possible to make a saving if you can find a sufficiently attractive alternative to switch to. It’s just that you need to add an extra element to your arithmetic.
This is the effect of penalty charges on your current mortgage. Most fixed, discounted and tracker deals will require you to pay exit fees if you remortgage before the term of the product has come to an end. Typically, the penalty will be several months’ worth of interest – though the fee may vary depending on how far from the end of the term you are.
Remember to add on the cost of these fees to what you’ll be paying with your new deal over the period to the end of your existing mortgage. You may still save money.
Getting mortgage help
If you’re worried about getting the calculations correct, it is worth getting impartial, expert advice. Lenders must give you clear illustrations of the cost of their mortgages, so ask for the figures. But if the process seems daunting – and you may not even be sure about the best mortgage to switch to – take advice.
You can speak to a Which? mortgage adviser by calling us on 0117 981 7787 – or request a call back. Our advisers look at every mortgage from every available lender, and because they’re paid a salary – not a sales commission – you can have confidence that you’ll receive truly impartial advice.