Remortgaging – short-term pain, long-term gain

A report from the Bank of England (BoE) revealing that the number of loans approved for remortgaging was up in January got me thinking how people go about finding the best deal and what prompts them to make the decision in the first place. Mortgage figures are easy to come by in the world of consumer finance, but the average man and woman on the street are not particularly interested in all the latest developments.

However, one of the main impetuses to remortgaging is interest rate news. Although people in the media are in a position to examine the impact of borrowing cost fluctuations on quite a minute level, most people only start thinking about remortgaging when mainstream news outlets, such as the BBC, mention inflation or the BoE. Obviously, when rates are up or the threat of hikes is apparent, homeowners become painfully aware of how policymakers are making decisions that could potentially erode their disposable income and affect their quality of life.

Before Christmas, internet bank Egg reported that nearly ten million people in the UK were thinking of remortgaging over the subsequent three months because of recent interest rate increases. To highlight the correlation between interest decisions and a change in the temper of homeowners, Egg published figures that showed 60 per cent of homeowners are considering switching to a fixed-rate mortgage, 12 per cent are seeking variable-rate mortgages, eight per cent are considering switching to discount-rate mortgages and 5.8 per cent are contemplating moving to a tracker-rate mortgage.

Homeowners that have their wits about them (and who can afford not to?) can save hundreds or thousands of pounds if they do a bit of homework and review the mortgage market thoroughly. With the unstoppable growth of the internet, I guess most people now look to price comparison sites for an overview of the best deals. Many of these websites feature handy mortgage calculators that swiftly work out how much can be saved by remortgaging to a lower interest rate, or how much it would cost to increase the size of a loan.

Capitalising on the mood for change, these price comparison sites have been urging fixed-rate mortgage holders to remortgage as soon as possible and to act now in order to drive down monthly payments. In fact, borrowers whose fixed-rate three-year deals expired recently would have faced standard APRs of around 6.55 per cent, which is more than two per cent higher than the average rate in 2003. Nonetheless, despite the market being less favourable to homeowners, the general consensus is that there are still good deals on the market.

One of the good things about things price comparison sites – apart from the fact that they're usually impartial – is that they allow harassed homeowners to research the mortgage market in an easy, convenient way. This allows them to compare and contrast current deals with others. In an age where everyone works longer hours and time is precious, these one-stop-shops can be a godsend. At the same time, it is worth checking whether your current lender can provide a better rate.

Changing a lender could be considered something of a hassle, but if it saves a significant amount of cash every year, it's probably worth the short-term pain. Obtaining a redemption statement and finding out whether any upfront costs will be levied is a necessary evil. Basically, homeowners need to seriously weigh up what they would gain by moving their mortgage.

While it is all too easy to get bogged down in the minutiae of remortgaging and become confused by a range of confusing terms and penalties, it is probably best to keep in mind the bigger picture, which is to save money. After all, banks are more than prepared to drive up penalties and rates of interest to augment their impressive profit margins, so it is up to individual men and women to do all they can to hold on to their hard-earned money. If this involves a bit of web-searching and head-scratching, so be it.

Author: Richard Mather