A hassle-free guide to re-mortgaging

There are three reasons why you might want to change the existing mortgage on your home, or re-mortgage:

- You want to save money by paying a lower interest rate
- You want to borrow more money
- You want to pay off your mortgage early

Many people are in a position to achieve one or more of these objectives through re-mortgaging.
Start with a statement
Your starting point for hassle-free re-mortgaging is to know exactly how much is outstanding on your current mortgage, what the remaining term is, what interest rate you are paying and whether you have a repayment or interest-only mortgage. If you don't have this information to hand ask your current mortgage lender.The final and most important question to ask them is: What will I have to pay if I switch my mortgage to another lender? There may be two parts to the answer:

- Mortgage redemption fees. All lenders charge a fee to cover admin costs when a loan is paid off. This should be specified in your mortgage documents and should be no more than £150.
- Redemption penalties on your existing loan. These could be sizeable, like 3% of the loan. But if you have been on a normal mortgage for several years they are more likely to be zero.

You could save yourself £20,000 over 20 years
First do a quick calculation to see if it's worth getting some quotes. Compare the interest rate you're paying now with the rates shown in our Best Buy tables. If the rate you are paying is 1% or more above these rates, then it's worth doing some more calculations. On a £100,000 mortgage, reducing the rate you pay by 1% saves you about £83 per month. If your mortgage has 20 years to run, the saving will amount to a massive £20,000 over that period. Or, if you have a £100,000 repayment mortgage at a rate of 6.5%, switching to a rate of 5% and keeping your payments the same will cut the remaining term from 20 years to 16.5 years.

Check that you are eligible
To be eligible for a re-mortgage, you need to have an income that will support the proposed loan. Normal income multiples apply- usually up to a maximum of five times a single income or four times one and up to two times a second income. To get the best deals, the Loan-To-Value (LTV) ratio is also important. The best re-mortgage deals are offered with LTVs of no more than 85%. You can get a higher LTV with a re-mortgage but may not get the lowest interest rate. Don't be over-optimistic about the value of your home - the valuer employed by the lender will usually value at 5-10% below the current asking price of similar properties in the area.

Check out the best deals
At any one time there are no less than 5,000 different mortgage offers available in the UK from over 100 mortgage lenders. No best buy table or wizard will give you enough information to select a mortgage. Instead, get a mortgage broker on the case. Check the broker's status up front: what you want is a broker that charges no fees and deals with all the major mortgage lenders. You will need to tell the broker what you want: amount of loan, term, repayment or interest only, standard/ flexible/offset. Then let them research the market and get you illustrations of the best deals.

Calculate all the costs
If you use a no-fee broker, then a re-mortgage has the following potential costs- though not all will apply:

- Redemption fee from your existing lender
- Redemption penalty from existing lender (possibly)
- Arrangement fee from new lender (anything from £200 to £600 on standard mortgages. See below for example.)
- Valuation fee (should be no more than £200 but will be waived by many lenders)
- Legal fee – should be no more than £300 but will be waived by many lenders

Many re-mortgage deals offer free valuation and no legal fees, but arrangement fees have been rising. If the arrangement fee is £600 on a £100,000 mortgage, and your interest saving is going to be £83 per month, then it will take 7.2 months before you are ahead. Actually, most lenders will add arrangement fees to the loan, but if you can pay them off upfront, so much the better, since you won't have to pay interest on them. Likewise, if the redemption fee is, say, three months' interest, or £1,500, then it would take over 18 months before you were better off with a monthly interest saving of £83 (or 1.5% less interest on a £100,000 loan).

Pick the right deal
The biggest factor in a re-mortgage is getting a lower interest rate, and with so many lenders competing for new business, there are almost always a few cracking deals on the table. But the term of the new deal may be just as important. For example, say you have these two offers, both of which have an arrangement fee of £500 for a £100,000 mortgage: 4.5% fixed for two years, or 4.7% fixed for four years. With the second offer, you will pay a total of £400 in extra interest over the first two years. But with the first offer, you would probably need to pay a further arrangement fee at the end of two years to switch to as good a deal. So the four-year offer may prove better value.

Try a bit of cheek
Before you commit to a new mortgage, but no until you are pretty sure of what you could get, ask your existing lender what they will offer. They may want to keep your business, and since they will usually waive arrangement fees, it may even be worth paying a slightly higher interest rate to avoid having to switch.

Re-mortgaging tips

Mortgage term: remember when getting illustrations for a re-mortgage to get them for the remaining term of your loan. If your existing loan term is 20 years, you can certainly save money by switching to a 25-year mortgage, but this isn't a real saving.

Shortfall: if you have a projected endowment shortfall, then you may be able to cover all or part of it by switching to a repayment mortgage at a lower rate of interest.

Savings: if you can afford to go on paying the same amount when you switch to a lower-interest repayment mortgage, you'll shorten the term of the loan. Do this or put the money in a long-term savings plan to ensure you really reap the benefits of paying less.