Mortgages - How You Can Switch Yours

Posted by james_copper

April 2, 2008

For many borrowers, remortgaging offers a great way to take advantage of a new fixed, tracker or discounted rate. In this way it is often the goal of the borrower to avoid paying the comparably high standard variable rate.

Remortgaging also offers the opportunity to raise funds on your property. If you have owned your property for a few years then there is a high likelihood that the property value exceeds the mortgage or loan secured upon it - this difference is know as the equity.

On the flip side, if you owe more money secured on your home than the property is actually worth then it is said that you are in negative equity, in which case many lenders would be very cautious about taking on your remortgage application.

By increasing the size of your mortgage will allow you to free up any available equity for whatever your purpose.

The Costs

The process of remortgaging is not cheap, however often the benefits will outweigh the costs. Fees and charges will differ from one lender to another and from one mortgage broker to another - it always pays to do your research and shop around!

The common fees and charges involved will include:

# Arrangement and administration fees. These may be added to the loan however you will pay interest on the amount for the term of your mortgage. Again, arrangement fees will differ hugely and can start from 150.00 all the way up to 1,500.00.

# A mortgage valuation fee. This tends to be between 100.00 up to 300.00 - the cost is largely dependent on the value of the property. You may be able to find mortgage deals that will offer a free valuation so therefore it pays to shop around.

# The Higher Lending charge. Generally, if you are looking to borrow in excess of 75 percent of the value of your property, the lender may apply a one-off higher lending charge. This premium protects the lender in the event of mortgage shortfall however it is the borrower that will have to meet the cost.

# Solicitors fees. Conveyancing fees will vary according to the amount of legal work involved. You may be able to find a lender that will offer free legal work.

# Early Redemption Penalty. This charge may be applied if you opt out of your mortgage before the end of any tie in period you may have. This is not usually advisable as the penalty could result in thousands of pounds.

Remortgage Action Plan

1. Approach your lender to find out what they have to offer you at the end of your tie in period. If they offer you an attractive offer, this could mean less paperwork and ultimately less hassle - in many cases however, a remortgage will be arranged with a new lender.

2. Contact your lender for a written redemption statement. This will indicate the exact outstanding balance of the loan and will highlight any penalties or fees charged for redeeming your mortgage.

3. Shop around for a new mortgage deal. When you receive a quotation this will be in the form of a Key features illustration (KFI). This document will outline the interest rate and monthly payments, along with the fees involved and any additional mortgage features.

4. Make a judgement based on your research as to whether it is financially beneficial to switch lenders. Compare the costs with the savings however do not forget that the costs will be payable upfront while the savings will accrue over a period of time.

James Copper is a mortgage broker with over 30 years experience. He works for http://www.any-loans.co.uk as a secured loan advisor. In his spare time he writes on all things financial.

Mortgage