Re-Mortgaging: A Guide
Following on from the post below I decided to offer a brief guide to the process of re-mortgaging, since I have largely ignored the topic until now.Firstly, there are several factors to bear in mind when looking to switch your mortgage provider. In recent years, banks and building societies have been hiking mortgage fees to subsidise attractive headline interest rates. So called mortgage arrangement fees have sky-rocketed as have charges for redeeming a mortgage. As a result, you have to do the sums to make sure that what you gain through switching provider - a lower rate of interest - is not lost through higher charges. The first step is to check the terms and conditions of your existing mortgage. These will tell if you are tied-in to your mortgage deal or if there are any redemption penalties - sometimes phrased as early repayment charges. If you are locked-in, you must decide if it is worth switching to a different rate or stay put until the penalties have expired. You may have been with your existing lender for a long time and feel a sense of loyalty towards the company. However, most lenders do not reward this loyalty with a reduction in rates. You should therefore expect to shop around and look towards a different lender to get a better deal.You will face a choice of broadly four types of deal: fixed, capped, discounted and flexible. Fixed-rate mortgages are ideal for people who want certainty and must be able to regulate how much they will be spending each month. The rate is usually fixed for between two and five years. Discounted loans offer a reduction off the standard variable rate for a set period. If rates fall further, the rate that you will pay will also go down. However, when rates rise, so will your mortgage payments. A capped-rate loan will set a limit on the rate you will pay. If rates rise, your payments will not go above that level. However, if rates fall below the cap so will your repayments. Flexible mortgages allow you to overpay and underpay when you choose and without penalty. This is ideal for people who have fluctuating incomes or who want to clear their mortgage early. An increasing number of fixed, capped and discounted deals have more flexible features as well. Lastly, avoid deals with extended redemption penalties. While these had been phased out in recent years, a number of lenders have reintroduced extended penalties to clamp down on so-called ‘rate tarts’ who move around frequently to get the best deal. Extended redemption penalties are often hidden in the small print of a mortgage contract and are sometimes called early repayment penalties or charges.
