What is remortgaging and should I do it?

Moving your home loan to a new lender, without actually buying a new home. Doing this could save you a lot of money. Millions of people have mortgages which are on their lender's standard variable rate when they could be on a special deal offering a cheaper interest rate. In fact, cheap fixed and discounted rate loans are partly possible because they are being subsidised by those borrowers who pay the normal rate. Such people are paying the price for not shopping around and monitoring their financial affairs. Sounds tough, but that's the way it goes.

Rate Monthly

This is what the typical £100,000 interest only mortgage costs at various interest rates. Compare the variable rate you are paying with the savings available on cheaper fixed or capped rate offers.

So why doesn't everyone do it?

Three main reasons. The first is that many people don't actually realise that they can switch their loan to another lender without moving house. The second is that even if they do realise it, they may be put off by the stress involved and may not realise how large the potential savings actually are. Finally, many borrowers are already locked into special deals taken out a year or two ago which demand a stiff penalty if they want to remortgage elsewhere.

Is there a catch?

Yes. Remortgaging costs you. You could have to pay an application fee for a special loan (perhaps £250-300), a valuation fee, and lawyers' fees too, and this bill could easily hit £700-800 in total.

This may wipe out the savings from lower interest if you have a small mortgage. The good news is that competition for new business is fierce among lenders, and many - aware of the problem - have special deals aimed specifically at the remortgage market.

How do these work?

The interest rate might not be quite as competitive as on other loans in the range, but that is offset by benefits such as a free valuation, no application fee, and either payment of your legal fees if you use a nominated solicitor, or a £250-300 cashback so you can pay them yourself. Such deals are ideal for people with smaller loans.

Will I have to go to another lender?

Quite possibly. Lenders often exclude their existing, loyal, customers from their best remortgage deals. This is because their aim is to poach customers from rival institutions, not to offer their existing customers a cheaper loan than the one they've already got. So you may need to shop around to find the best deal for you. That doesn't sound fair.That's because it's not.

What if I'm innegative equity?

Then you probably won't be able to move, even though cutting your interest bills would free up money that could go towards closing the negative equity gap. All is not lost however. In the first place negative equity is much less of a problem, and if house prices continue to rise could even vanish. And secondly, many lenders offer schemes whereby customers with a good payment record can borrow 125% of the value of a new property, so allowing them to carry their debt over.

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