It is essential to make sure that remortgaging is definitely worth your while. You need to measure the potential savings against all the actual and exposed costs involved.
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Early Repayment Charges
If you have an existing fixed, capped or discounted rate mortgage, or if you received a substantial cashback when you took your current mortgage, there is a real chance that an early redemption charges will apply on your loan.
Typically, you will have to pay your existing lender a number of months interest should you cash in the loan before the end of the period.
Penalty charges
Unsuspecting switchers who are still in the initial period of, say, their two or three-year deal could also be liable for hefty penalty charges if they change mortgage lender. The charge can be up to 3 per cent of the loan.
If you are swapping to a cheaper deal with the same lender you may escape a penalty charge, but some deals even have penalties which run beyond the end of the initial deal tying you into a lenders high standard variable rate.
David Mead, managing director of Kent-based advisers Flexible Morgage.net, said: A reputable adviser will not sell a mortgage with an overhanging charge and we certainly never recommend products with extended penalty charges. Its a new industry no-no.
Arrangement fees
Also known as a booking fee, application fee or administration fee, these up-front charges are on the rise and range from £60 to thousands of pounds.
Some lenders will as with penalty fees charge a percentage of the loan instead; for example, a 1.5 per cent charge will cost someone borrowing £150,000 a fee of £2,225.
But fee-free remortgaging deals, with legal and valuation fees included in the deal, are increasingly common. Another option is to roll your fees into your loan to avoid paying them up front. However, you will pay interest on these fees, which is more expensive over time.
Exit fees
This is, says Meads, a nasty little expense that advisers and consumer groups are campaigning to abolish. Expect to pay the lender you are switching from anything up to £295 for releasing the deeds to your home.
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Creeping rates
In a fiercely competitive market, nearly every lender is keen to attract remortgage business. Most lenders are prepared to offer a range of deep discounts, low fixed and competitive capped rates which match up to the deals they offer home buyers on order to attract mortgage customers.
If your new lender is offering a better deals than your current loan, make sure that it applies for the future and isnt just an attractive introductory rate.
Look at the lender’s standard variable rate (SVR), which should provide a measure of its current competitiveness – a low rate should mean that it is looking after its existing borrowers as well as new customers. Remember, there ought to be substantial savings or special benefits attached to the new loan, before you consider remortgaging to a new lender.
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Loss of benefits
If you took out your current mortgage before October 1995, you should qualify for much more generous help with your mortgage payments from the state should you become unable to work.
For those who took out a mortgage prior to 2nd Oct 1995, the state income support to qualify borrowers kicks in after eight weeks of claiming and is worth 50 per cent of the interest for the next 18 weeks and 100 per cent after that date.
Mortgages taken out after 2nd Oct 1995 the borrower gets no help with interest payments for the first nine months of making a claim.
A borrower whose existing mortgage arrangements predates October 1995 risks losing their right to the more generous state income support terms should they remortgage for a larger loan from a new lender.
Choosing the wrong mortgage could end up costing you thousands of pounds, so make sure that you thoroughly research the market to find the best deal for you.
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