These days, there are thousands of competitive mortgage deals to choose from. And with the reduction in the number of products with early repayment charges beyond the initial deal period, there is no reason for anyone to be paying a lenders standard variable rate (SVR) in todays market.
The average SVR is currently 6.44 per cent according to Moneyfacts, and some lenders, including Norwich and Peterborough and Nottingham Building Societies, have increased their SVRs before the 0.25 per cent rise in the Bank of England base rate.
With the current Moneyfacts best-buy discounted variable rate for 95 per cent loan-to-value (LTV) at 4.19 per cent for two years, there is more than a 2 per cent difference between the average SVR and the best deals available, which means remortgaging when your current deal ends is likely to result in substantial savings.
You can also save switching to a fixed rate, even though fixed rates are generally higher than variable rates. For example, paying a 6.5 per cent SVR on a 25-year £150,000 mortgage, the repayments are £1,013 a month, but on Nationwides three-year fixed rate at 5.13 per cent, they are £888, resulting in savings of £4,483 over the three-year deal period.
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Extra costs
However, the fees charged on some products have been increasing, which means you should take a close look at all the costs involved before choosing a new deal.
Research by MoneyExpert.com showed that mortgage application fees have increased by as much as 22 per cent in a year, with the average now at £407 for a discounted rate and £494 for fixed
Exit fees, or the charges for leaving a mortgage lender, have also increased in recent years. For example, Alliance & Leicester now charges £295 compared to £150 five years ago, while the Woolwich charges £275 instead of £95.
The Financial Services Authority, which regulates mortgages, is already questioning the fairness of these charges but some lenders are still offering a good deal.
Nationwide Building Society only charges £90 and introduced the fee as recently as May 2005 after charging nothing for a number of years. Borrowers with less than ten years left on their mortgage pay nothing as a reward for their loyalty.
Other hidden costs to watch out for are telegraphic transfer fees, which most lenders charge for transferring the funds to your solicitor. BM Solutions is among the lenders charging the most at £49, while Nationwide charges £20, whereas Cheltenham & Gloucester charges nothing.
Potential savings
But while fees have generally increased, the number of products with application fees has actually decreased. In the last year or two the principle of charging fees has become diluted, says Rob Clifford, managing director of mortgage broker Mortgageforce.
Fees used to be payable on all mortgages but now they mostly apply to special products such as fixed rates or self-certification mortgages.
This means its possible to remortgage to a product with very few costs and many lenders offer deals with no valuation or legal fees for remortgages. It is also possible to choose to pay a slightly higher rate but no fee or a lower rate with a fee.
Portman Building Society, for example, charges a £499 fee for its two-year fixed rate remortgage product at 4.89 per cent but no fee on its two-year fixed rate of 5.15 per cent. Theres a lot more choice now, and its important for borrowers to think carefully about what they want, says Lynsey Hallam, spokesperson for Portman.
Its important to remember that you will have to pay the interest rate for the duration of the deal, so in many cases it may be worthwhile paying a fee to get a lower rate.
As a result of mortgage regulation, lenders now have to be completely transparent about the fees they are charging by including them on the key facts illustration (KFI) for each product. This means it is easier to compare the rates and fees of different mortgages side by side.
Its also important to look at whether you will have to pay any early repayment charges to switch lenders, although it may still be worth remortgaging if you do, and exactly how much your redemption figure is. You may owe more than you think you do because of charges that were added at the outset, points out Rob Clifford.
While interest rates are not as low as they were three years ago when the base rate was at 3.5 per cent, and anyone switching from a very low rate taken out two or three years ago is likely to have to pay slightly more, they are still historically low.
However, some borrowers benefit more from remortgaging than others. Anyone on a specialist product because of credit problems in the past who has now repaired their credit could save significantly by switching to a mainstream product. Borrowers on a SVR will also benefit.
Alternative options
Remortgaging every few years or being a so-called rate tart is now common practice for many borrowers. However, there are alternatives to serial remortgaging.
One option is to go for a long-term fixed rate, although with slightly higher rates, they tend to make sense for borrowers targeting long-term financial goals, for example, in a countdown to retirement.
There are plenty of competitive long-term rates around, including a ten-year deal from Leeds Building Society at 4.99 per cent, a 15-year product from Northern Rock at 5.19 per cent and a 25-year loan from Kent Reliance Building Society at 5.5 per cent, but all tie you in for the duration of the deal.
Another alternative is to take out a flexible mortgage, which will allow you to make overpayments to pay off your mortgage early. This means you are willing to pay more now to save interest in the long run, says Tim Eagles, mortgage advisor at Simple Finance.
However, its a good idea to re-evaluate your financial position every few years. Towards the end of a deal period is the ideal time to do it. Its in borrowers interests to review their situation regularly and the market is so competitive that there are always good deals around, says Rob Clifford.
Remortgaging at the end of a deal is likely to be worthwhile for most borrowers. Just make sure you look at every aspect of a product, including its fees and charges, before choosing one – not just the initial rate. An independent mortgage adviser can help and will be able to look at the whole of the market to find the best deal for you.
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