Does it Make Sense to Remortgage?

Some people remortgage because they have to. They may have reached the end of their mortgage deal, or they may need to free up some equity in their property.

Other people, however, choose to remortgage because theyýve spotted a deal thatýs simply better than the one theyýre on right now and theyýve decided they want to cut their monthly payments by moving to it.

The interest charged on mortgages can vary more than you might think, due to changes in the base rate set by the Bank of England, levels of confidence within the banking system, worries about the economy and so on. Someone paying 7% interest on their mortgage could realise they have the option of switching to a 6% mortgage ý or 5% ý or 4%!

But is it actually worth it? The answer may not be as straightforward as you might think. Many mortgages can come with an ýearly redemption chargeý ý a fee that the lender will charge the borrower if they leave the mortgage earlier than originally agreed. Some people may think this sounds unfair, but thereýs a good reason for it: if they leave the mortgage early, they obviously wonýt be paying as much through their monthly payments as the mortgage lender originally expected.

An early repayment charge can be a substantial amount ý often thousands of pounds ý and in many cases itýs not the only expense involved in remortgaging, as the new mortgage could also come with an up-front fee.

So anyone thinking of switching to a new mortgage will have to do their calculations carefully and make sure the costs donýt add up to more than theyýre actually saving by switching to a cheaper mortgage in the first place!

Itýs also extremely important to understand whether the ýnewý mortgage deal will stay cheaper or whether itýs a temporary deal thatýs likely (or even certain) to change after a while. Leaving a 5% fixed-rate deal for a 4% tracker mortgage might look like a good idea at first, but thereýs no way of knowing what that rate will be in the future ý if the base rate shoots up, so will the interest charged on the tracker mortgage.

After all, many people on fixed-rate deals chose that type of mortgage in the first place because of the stability it offers. A fixed-rate mortgage will cost the same amount every month all the way through the deal, which means homeowners can figure out their budget more precisely, and not have to worry about the base rate jumping up ý and taking their monthly mortgage payments up with it!

Even so, anyoneýs financial situation can change over time. Someone who insisted on finding a fixed-rate mortgage five or ten years ago might find they now have the financial flexibility to cope with the relative uncertainty of a tracker mortgage.

Understanding all the pros and cons of the various different deals can be very difficult, so itýs never a good idea to commit yourself to anything without speaking to a mortgage adviser first.

Read more about mortgages & remortgages at http://www.thinkmoney.com