More and more borrowers are remortgaging to release the extra equity in their home. Many are paying off debts, making home improvements, or even investing in buy-to-let properties.
Some are simply remortgaging to get a better rate and reduce their monthly repayments.
Recent research from MoneyExpert.com shows the average homeowner could save up to £79 a month or £948 more a year, simply by switching their mortgage loan.
But for whatever reason you are thinking about a change, make sure you shop around when swapping your home loan.
What seems to be a great deal can often be loaded with extra fees and penalty charges which is often how lenders claw their money back on a low initial rate.
Staying put
The most obvious starting point for any remortgagor is with their current lender.
Whether you are looking to reduce your monthly payments or to borrow more, asking your lender if it can offer you a better deal than the one you are currently on is a good first step, says Cath Hearnden, director at mortgage adviser My Mortgage Direct.
Staying put with your building society or bank will save you a valuation fee, which normally costs around £200. But it is usually sensible to wait until your initial rate deal period is over before you try to move, or you will be charged an early redemption penalty, usually on a percentage of the amount of interest you would have paid.
Of course if you want to release extra equity, it may be that you will have to have another valuation fee as well, points out Hearnden.
But whether you stay with your old lender or find a new one, you will still have to pay an arrangement/application fee, which could be anything from £60 to over £1,500 just to remortgage.
Remember, says Hearnden, most lenders are geared up to attracting new customers. So the chances are any rate you get from your current lender wont be as good as the rate they are offering to new customers.
Hearnden recommends the Nationwide Building Society as one of the few lenders committed to offering both new and old customers the same rates.
Shopping around
If your old lender is being unhelpful and you want to shop around, youll benefit from a dazzling array of special deals, including waivers of arrangement and valuation fees.
Rachel McKay, mortgage researcher at Moneyfacts, says some lenders, like Abbey will not charge an arrangement fee if you are simply using your house to raise extra cash.
She says: If you have paid off your mortgage then they will not charge you a fee, especially if you only want to raise a small amount of cash, like £30,000.
For those looking to remortgage for larger sums, websites like Moneysupermarket.com and John Charcol will be able to give you a run-down of the cheapest mortgages but they often dont take into account hidden extras that can make the mortgage cost more over the long-term.
Hearnden says: Best-buy tables dont take account of the way interest is calculated. Abbey, Halifax and IF mortgages are all calculated daily, for example.
This makes them cheaper than a mortgage that charges interest annually such as the Portman Building Society.
Tanya Jackson of Yorkshire Building Society, which charges interest monthly, explains that paying interest annually can add up to hundreds of pounds over the life of mortgage.
This is because it doesnt take into account of how much you are paying off the mortgage during the year. If you are paying interest daily or monthly, this means the interest is being recalculated more frequently after a monthly payment.
Hearnden also claims that the APRs quoted on lenders and best-buy websites often do not include early repayment charges or deed-release fees.
She says: When borrowers switch to a new provider they often have to pay a deeds-release fee this is usually around £200.
Going to an adviser
Im obviously going to say its best to go through an adviser, because I am one, says Hearnden. But a purely independent
adviser will have access to every single mortgage available, and they will be able to talk you through the charges involved, says Hearnden.
You will have to pay an independent adviser a fee or commission. This can be paid upfront, or added to the mortgage.
Some advisers will charge a flat fee worth 1.5 per cent of the mortgage value or even waive the fees if you ask nicely enough.
Michael Brill, a director at Ilford-based Baronworth mortgage advisers, says: The benefit is that you get access to the whole of the mortgage market. Its the nearest to getting a bespoke mortgage. Nobody has the time to do that if they are not an adviser.
Many mortgage lenders are happy to add their application fee to the mortgage but this then becomes part of the loan, so you will also pay interest on the fees, which add up to £100s extra in interest over the mortgage term.
Brill says: The smaller the mortgage the less value there is in saving money on interest rates. If a client came to me with a £30,000 mortgage then the chances are they would have to pay at least £500 in charges. It would probably be better off sticking with the home loan they have.
He adds that clients with large mortgages, £300,000 or over, should frequently review their mortgage rates, and pay less attention to fees and charges.
He adds that 50 per cent of clients who want to remortgage are doing so to pay off debts.
He warns: If you are remortgaging to pay off debts cut up your credit cards once youve paid them off, otherwise anything you save on fees or interest will be wasted.
The Mystery shopper
Our borrower wants to lower the £887 repayment on a £120,000 mortgage and repay the loan over 20 years.
- The website
Moneysupermarket.com
Best deal: First Actives five-year tracker charging 5.3 per cent APR, £780.68 to repay each month
Fees: free valuation and legal fees (£175 and £399 respectively for existing customers).
- A mortgage lender
Best deal: Northern Rocks Rapid Remortgage Service. Flexi-fixed mortgage ten years at 5.8 per cent APR, £695 monthly repayments.
Fees: No fees for new customers.
- Independent mortgage adviser
Best deal: David Clare, independent adviser and director of Flexible Mortgage in Edenbrige, Kent, suggests Yorkshire Building Societys 2 per cent discount at 4.4 per cent, which was £752 over two years.
Fees: Theres no charge for the advice given.
Shoppers verdict: I would probably opt for Northern Rocks mortgage as it appears cheaper, but if interest rates fall Id be tying myself into a higher rate. Id probably go with the independent adviser.
Staying with your current lender
You will pay another arrangement fee
You wont pay a deeds-release fee
You wont pay another valuation fee
You wont always get access to the best rates this could cost in the long run
Moving your loan to a different mortgage lender
You will pay a deeds release fee
You may get free application/arrangement and valuation fees, but watch out that these are simply not added to your mortgage
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