Economists spend their professional lives trying to second-guess what the Monetary Policy Committee (MPC) of the Bank of England, which sets the base rate, will do next and they still get it wrong.
Arguably, borrowers whose mortgages are coming to the end of their fixed or discounted periods need to think less about the chatter over where rates might head and more about avoiding paying over the odds.
The SVR trap
Paying lenders SVRs is costly. An analysis by price comparison website Moneysupermarket.com recently showed the average SVR to be about 6.5 per cent 2 per cent above base rate at 4.5 per cent meaning borrowers with mortgages of, say, £100,000 could save £4,560 over two years if they remortgaged to a two-year fixed-rate deal at 4.24 per cent, compared with sticking to an average 6.5 per cent SVR.
Paying SVR even for a few months can cost hundreds in extra interest. There is also no guarantee borrowers will win the waiting game and interest rates will come down further.
Recent figures from the Council of Mortgage Lenders show that remortgages accounted for 41 per cent of all new loans in July 2005, but there are still plenty of borrowers wasting money each month by paying SVR.
Louise Cuming, head of mortgages at Moneysupermarket.com, says: Id urge the quarter of borrowers currently paying the SVR to consider remortgaging to one of hundreds of compe–titive deals on the wider market or face wasting thousands of pounds in interest.
The first step
So, where do prospective remortgagors start? The answer, say mortgage experts, is with your existing lender.
Bob Sturgess, a director at specialist lender Money Partners, says: Its less arduous if you remortgage with your current lender you may not need to undertake a valuation as your lender ought to be able to project how much your property is now worth and there ought to be less paperwork involved. The whole process might be done and dusted in just seven working days.
Sturgess says if the best deal is to be had at a new lender, this will involve getting a full valuation. The new lender also needs to research land title documents and complete the conveyancing, all of which can stretch the process over as much as eight weeks.
Moving on
If you do switch lenders, expect to be asked to gather paperwork including wage slips and bank statements, unless you need a mortgage that does not require proof of income.
Remortgaging usually demands the payment of arrangement, valuation, legal and lender admin fees costing up to £1,500 in total, although many lenders offer fees-paid deals which cover these expenses. However, bear in mind that these mortgages tend to be more expensive about 0.25 per cent more than mortgages where you pay your own costs.
Roughly speaking, the larger the mortgage, the more likely it is that securing the keenest rate and forking out for fees will prove cost-effective. Ray Boulger, senior technical adviser at mortgage adviser John Charcol, says: Its important to do your sums over the period of the deal. As a rule of thumb, the lower the mortgage, the more important fees become.
Boulger also advises anyone with a fees-paid deal to try and ensure the solicitor provided by the lender does not complete the deal too early, which could see borrowers paying back their mortgage early and falling unwittingly into a penalty trap with their old mortgage lender.
Redemption penalties are typically charged when you leave a mortgage before the offer period has ended, but some lenders also charge beyond this date. If you are unsure about redemption penalties, consult your lender or a mortgage adviser.
Securing best value
When shopping around for the best deal, borrowers need to think about what is known in the trade as the true cost of the mortgage, which, unfortunately, is not as simple as comparing headline rates.
Within the Key Facts Illustration (KFI) document that all would-be borrowers are given, every fee and mortgage cost, including interest, is laid out in black and white. This makes it easier for customers to compare, for example, a mortgage with a low rate but high arrangement fee with one with a higher rate but much lower arrangement fee.
Total up the entire costs of moving to your new deal compared with the interest savings over the duration of the deal so you can answer the question: Am I going to be better off by staying or going? advises Craig Calder, senior marketing manager at Alliance & Leicester.
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