Is saving £££thousands right for you? (General Comments in general)

Member Name: opinions4u

Product:	General Comments in general
Date:	07/09/02 (164 review reads)
Rating:

Advantages: Saves you lots of money, Can raise additional funds cheaply

Disadvantages: Don't extend your term, Make sure the deal you get is good short and long term

Remortgages


Remortgaging is the concept of moving your mortgage from one lender to another, without moving house.

There can be a range of reasons for remortgaging.

The most common reason is simply to switch to a more competitive rate. The majority of lenders will offer incentives and discounts to tempt you to switch over to them.

Another reason is to raise capital for home improvements, debt consolidation, or any other reason you care to mention. It is possible to combine lower rates with additional borrowing and keep your monthly payments the same.

Other growing causes of remortgage are marital / relationship breakdown or the desire to ditch an under performing endowment plan. Paying for private or university education is another common need for remortgage.

All these are good reasons. And, in most cases, remortgaging is a cheap and effective way of going about things. So, what should we look out for?

The best place to start is with you existing lender. You need to ask them can they switch you over to a better deal and are there any charges to do so? Armed with this information, you can then compare your current deal with those of other providers. Another question to ask is what rate would they offer to a new customer remortgaging to them. While this probably will not be available to you (and, being fair, you probably got a discount of some sort at the start of your mortgage) it does give you a feel for what you should expect elsewhere. Finally, ask what fees and penalties there will be for moving your mortgage away from your existing lender. This will put them on their best behaviour and if there are any under the counter deals open to you, they should now appear.

If you were planning to amend your mortgage in some other way (eg additional borrowing, change of name, abandoning an endowment policy etc) you also want to know what fees they may charge too. Mortgage lenders are pac
ked with fees for any administration beyond collecting the direct debit each month, many of which can be avoided simply be switching to a different lender!

You now have to hand the pros and cons of staying put with your existing lender. But now is the time to shop round and find out what else is available in the market place.

An Internet search engine, the financial pages of the quality press, teletext, or simply a trek down the high street will help you find the best deals. Given that the remortgage market is a rapidly changing place, I will not try to recommend one lender over another, as this week?s advice could well be out of date before your next bank statement!

What I will do, however, is try to guide you on the pitfalls to look out for.

Firstly, all lenders are in it for profit. Whether they are a mutual, a plc, or a foreign lender new to Britain, they all have to operate on a business basis. In other words, they will price things to make money out of you ? but hopefully you can find a deal that makes less money out of you!

First, you need to decide which type of mortgage you want. A traditional mortgage sat by itself, an offset mortgage, which sits alongside your savings, bank account and credit card, or a current account mortgage. All have their own advantages and disadvantages. My advice is to consider all the following points equally for any of the above options. Very often (but not always) the fancier the mortgage, the less competitive the rate!

1. What is the headline rate and how does it compare? Is it fixed or capped or can it go up?
2. Is there an arrangement fee?
3. What are the redemption penalties if and when you pay the mortgage off (usually this happens when you move house or remortgage again)?
4. Are you able to overpay or make part repayments without penalty?
5. Do you have to pay any legal fees or valuation fees, or will the lender pay these for you?
6. Is the
re a Mortgage Indemnity fee (often charged if you?re borrowing over 75% of the value of your house)?
7. Beyond any initial interest rate, what is the lender?s standard mortgage rate?
8. Does the redemption penalty clause run beyond any discount period? As a rule, I would avoid such a deal, as you are completely at the mercy of the lender rather than a competitive market place.

This may sound like a lot to look in to. 5 minutes of discussion should, however, clear these issues up for you.

A lender charging 4% with no legal, valuation or indemnity fees may well be better value than one charging 3.5% plus £750 in various fees!

A lender charging 4.5% with no redemption penalties will be better value for you than one charging 4% with redemption penalties if you plan to emigrate to Australia in the not too distant future!

It is an interesting conundrum that will be different for every individual. For this reason, you want to ensure that any potential lender subscribes to the Mortgage Code Of Practice and any mortgage adviser you deal with is fully (not partially) CeMAP qualified. While these are not a guarantee of competence, they are as good a guide as you're going to get!

The matter is not yet closed. There are many other things to consider within the remortgage transaction.

If you are borrowing extra money for anything, ensure you can afford it first. If you are on a fixed income, or one that will only receive modest increases, or you fear an interest rate leap, it is wise to consider a fixed rate. Remember, disocunt deal are certain to go up in price at the end of the discount!

You will also need to consider how you will protect your repayments against the unknown. Death, severe illness and redundancy do occur and none of us is immune from anything! If you are offered these by a lender, make sure that you (a) need them (you may already have adequate existing coer) and (b) are paying a
fair and competitive price for them. Any illness or redundancy cover will have exclusion clauses in them that you should ask about before buying. Independent providers such as Marks & Spencer or Tesco are often (but not always) cheaper than the mortgage lenders! You can buy all of these things privately. If you are offered buildings or contents insurance by a lender, make sure you base any decision to buy on the competitive price and cover, not because the salesman says you should. As a rule, any mortgage deal that forces you to insure with a lender should be avoided.

If you are borrowing money for educational fees, ask about draw down. This means that you do not have to take all the money in one go. If you are borrowing £15,000 to pay for 3 years of fees and living expenses, you may prefer to draw £5,000 a year for 3 years to avoid paying interest on the whole amount straight away. Some lenders will charge a fee for this facility.

Remortgaging to consolidate debts is a popular and growing option being taken by today?s Britain. While in principle it is a good idea, consider what redemption penalties you have to pay on your existing loans. Also, do you really want to repay your car loan that only has 2 years to run over 20 years? You will pay several thousand pounds more in interest by extending the term, so while it is sometimes an excellent proposition on paper, make sure you consider all the implications. Long term liability versus short term savings.

Your existing endowment policy may not be the most exciting thing in the world. If you have had a letter telling you it is struggling to reach it?s target, switching from and endowment to a repayment mortgage at the same time as remortgaging can be a good idea. But you do want to consider what to do with the policy itself. In a perfect world, you should keep it going to maturity. This ensures you retain the value that has already built up in the policy and all the maturity p
roceeds will then go to you instead of your mortgage lender! It also means you do not have to fork out for replacement life cover that will be more expensive as you are a bit older now! This will cost you more each month than the options below, but is widely considered to be the most financially astute option that should be profitable in the long term.

If you do not live in a perfect world, there are other options. You could surrender your policy and take a cash value from it now. While this is nice, it is likely to be less than you have paid in to it. You could sell a with-profits policy for what is usually 25% more than the surrender value. Or you could make a policy paid-up. This means that you pay no more premiums for it, accept a lower level of life cover from it and a lower lump sum at the contracted maturity date. With all these options, you should consider taking out replacement life assurance. 100% of all known humans die!!

There is a halfway house. If you feel that the increase in cost of switching from an endowment to a repayment mortgage is too high, but still feel uncomfortable with the lack of security provided by the policy, you could have a part endowment / part repayment mortgage. Good quality advice will give you a full understanding of this option.

So, should you remortgage? Only if it is financially sound to do so! As a rule, if you have redemption penalties on your existing loan, it probably is not. For the rest of us paying a typical rate of 5.95% on a £50,000 mortgage, savings of £1,000 a year are available. The trick is to review you mortgage and your mortgage lender regularly! And consider using that £1,000 a year to reduce debt rather than frittering it away on booze and fags!

Extending the term when remortgaging is a common mistake too. Try to avoid this unless it is a financial necessity. Also try to avoid stretching your mortgage term close to, or beyond, your planned retirement age.
If you intend to retire at 60, try to ensure your mortgage finishes before you are 55. This means if you need to retire early due to ill health, you can do so without the worry of a mortgage!

Finally, if you have a 25-year repayment mortgage, doubling the payments will reduce the term to just 8 years! Easy to say ? do it before you have kids!

Look into it. It could save you a small fotune. But keep your eyes open!

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