How to cut the cost of remortgaging
Switching to a new mortgage deal can be a good way to save money on your monthly repayments. There are a number of things you can do to make getting a new mortgage more affordable.
Shop around for a remortgage deal
To make sure you’re getting a good remortgage deal, it’s important to shop around and look at mortgages from a range of lenders. You can use our interactive remortgaging rates table to compare the total cost of remortgaging deals, including the fees.
Check remortgage fees
When weighing up the cost of switching, it’s not only the headline rate you should look at but the remortgage fees you will be charged as well. Fees to set up a new mortgage can run into thousands of pounds, so you should work out the total overall costs, including both interest and any fees.
Remortgage with your current lender
It is always worth speaking to your existing lender before getting a new mortgage to see whether it will offer you a better deal. You may find that doing this will be cheaper than the best alternative deal you can find, as you may avoid paying fees or penalties for changing providers.
Improve your credit rating
Your credit rating will have an impact on what deals you will be offered, depending on how good your score is. You can request your credit report from the three agencies in the UK responsible for credit references – Callcredit, Equifax and Experian – to find out what information they have stored about your financial behaviour. There are a number of things you can do to improve your credit rating. Read the Which? guide on ‘How to improve your credit rating’ for more help.
5 tips to save on your mortgage
What is your single biggest monthly outgoing? For many of us it’s our mortgage repayment, and if that’s the case for you, cutting the amount you pay each month, or overall, could make a big difference to your budget. Read our tips below to find out how you could save on your mortgage.
1. Don’t get stuck on the standard rate
Fixed-rate deals are fixed for a certain time period, such as two or five years. When that period comes to an end you’re likely to end up moving on to your lender’s standard variable rate (SVR). Lenders set their own SVR, and it could be much higher than the fixed rate you were on, meaning your repayments suddenly jump up.
If you’ve kept up your mortgage repayments, your loan-to-value (see 3 below) might have also improved since you took out the mortgage, meaning that better deals are available. So, rather than leaving your mortgage ticking over on the SVR, ask your lender what other rates it’s offering.
2. Shop around for a better deal
It really pays to see how other deals in the market compare with the one your lender is offering. You could do this by contacting several different lenders directly, or speaking to a mortgage broker.
Mortgage brokers differ widely, and so it’s important to ask whether they’re independent, if they’re tied to a particular lender or panel of lenders, and whether they’re able to compare direct deals (i.e. deals that can only be taken out by the borrower, rather than through a mortgage broker).
3. Improve your loan-to-value ratio
Lenders calculate how much interest they will charge based on the loan-to-value (LTV), meaning the amount they have leant you against how much the property is worth. The lower the LTV, the lower the rate of interest. For example, if you are buying a £200,000 property with a £10,000 deposit, this would equate to 5% of the property’s value, giving you a high LTV of 95%.
LTVs are usually calculated in thresholds of 5%, with the best deals reserved for those with the biggest deposits. The pricing difference between thresholds can be substantial – for example, the difference in rate between a 5% and 10% deposit can be as much as 2%. So if you are close to a threshold, it might be worth trying to pay off a lump sum on your mortgage so that you qualify for a better rate and have less to pay, both monthly and overall.
4. Consider overpaying while interest rates are low
Overpaying doesn’t sound like a great way to save, because in the short term it means giving up some of your disposable income. In the long term, however, it could save you thousands. Overpayments mean you pay off the amount you owe faster, reducing the amount you have to pay in interest.
For example, say you owe £200,000 on a 25-year mortgage at a rate of 3.5%. Your current repayment is around £1,000 a month. If you overpay by £50 each month, you would save £8,211 over the life of the mortgage in interest alone.
Many mortgages allow you to overpay by a maximum of 10% of the loan amount each year without penalty, but it’s worth checking what the rules are on your deal. Also check if your savings account pays greater interest than is charged on your mortgage – if this is the case, it might be worth saving the money rather than overpaying. Use our mortgage repayment calculator to quickly calculate your repayments.
5. Get expert advice
An independent, qualified mortgage adviser will be able to give you tailored advice on the ways you could save, based on your personal circumstances.