Is it worth remortgaging?

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Homeowners with fixed rate mortgages should get organised well before their rate ends - or potentially find themselves paying hundreds of pounds more than they need to, recent customer experiences show.

Many banks or building societies only contact customers at the last minute, if at all, to remind them that their rate is up.

London based magazine editor Martyn Collins recently found this out to his cost. He received a letter from Cheltenham and Gloucester reminding him that his deal was up only three weeks before the mortgage rate was due to change, which didn't leave enough time to arrange a new mortgage. Martyn says "I was left with no choice but to take the variable rate the building society were offering."

He adds, "This will cost me a couple of hundred pounds more a month than I was paying until I can sort out moving the mortgage to one of their deals".

His experience is not unusual and it's definitely worth trying to move onto a 'special offer' rather than the variable rate, which typically is the highest.

Beware the costs

However, the cost of switching mortgages to a new provider, or even moving mortgages with the same one, has shot up in the last couple of years as providers have increased set-up fees considerably, and this can offset the benefits.

You should always work out the total cost (including arrangement, legal and valuation fees, if they apply) and compare it with the repayment savings you can make.

For example, a borrower with a £150,000 mortgage would pay ££3,000 a year less in interest by switching from a standard variable rate of 7% to a lower two-year fixed rate of 5%. Even taking a one-off arrangement fee and other costs of £1,200 into account they would still save £1,800 a year.

Brian Murphy, lending manager at the Mortgage Advice Bureau, a mortgage broker based in Derby, says unless a borrower is already on a low rate mortgage deal or they are planning to clear their mortgage in the near future then remortgaging should be their number one financial’s priority.