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COMMENT
Why Rate Tarting Pays Off

By Jane Mack (TMFJane)
December 13, 2004

Earlier this year a government-backed report on the mortgage market pointed out that the best mortgage deals were usually only available to new homebuyers and the financially savvy - at the expense of existing customers.

And if you haven't considered joining the ranks of the financially savvy by remortgaging to a better deal then be aware that you are very likely pouring thousands of pounds down the drain by not doing so.

Since the rules introduced by the FSA on mortgage lending came into force at the end of October, it's now even easier to see exactly how much you could save by switching. Lenders now have to provide you with a Key Facts Illustration so you can see exactly what your mortgage will cost you over the term.

For example, Nationwide has produced a table comparing its own two-year fixed rate mortgage with others based on a £130,000 loan repayable over 25 years which illustrates perfectly why a headline rate is not the only thing to look for. The standard variable rate and the total amount payable, including fees, are vital to consider too. 

Lender

Headline Rate
 (2 Yr Fixed)

Ongoing Rate
(SVR)

 Total
Amount
Repayable		 Cost
per £
borrowed		 Loss by not
remortgaging
Nationwide 4.95% 5.99% £257,944 £1.91 -
Woolwich 5.25% 6.79% £276,048 £2.04 £18,104
Alliance & Leicester 5.39% 6.84% £277,551 £2.06 £19,606
Abbey 5.54% 6.75% £278,084 £2.06 £20,140
Halifax 5.59% 6.75% £276,683 £2.05 £18,730

Obviously, Nationwide is trying to promote its own mortgage by producing these tables and it may not be the best on the market to suit your circumstances. But that's why it pays to check out what's on offer and to use the Key Facts Illustrations to compare the true costs.

Deciding whether to remortgage your home comes down to a basic calculation: Will your savings from reduced mortgage payments be greater overall than the up-front costs? There are likely to be legal fees, arrangement fees and the cost of a survey to take into account and you may also have to consider any redemption penalties.

Nevertheless, the savings could still be substantial, particularly if you've got several years ahead of you of making mortgage payments. Besides, don't you want to join the band of rate tarts who are saving themselves a mint by regularly shopping around for a better mortgage deal?

More: Compare mortgage deals in our Homeowning Centre.