FOOL'S EYE VIEW
More Remortgaging Dilemmas – Not!

By Jane Mack (TMFJane)
October 15, 2001

Having written last week about how I was not really facing a remortgaging dilemma, I had a few interesting emails from Fools on the topic. One in particular, was from someone who was also coming to the end of his discount period:

I'm absolutely terrified about looking to remortgage – I really want to make the right decision, but I have a tendency to panic and look at figures through some kind of refracting lens. It's got to be done though – and any advice a wise person like yourself can give would be ever so appreciated.

I was, of course, a little puzzled that he described me as 'wise' since I'd always thought of myself as a Fool but, joking apart, I'll tell you what I told him.

First of all, the process of remortgaging really isn't frightening at all. When you ring your lender, all you have to do is casually say that you're thinking of remortgaging and you're wondering if they've got any other deals they can offer you. My own lender has a special department to deal with people who ask such questions – they know it means you might be thinking of leaving them and, usually, they'll want to stop you! I've been with them for 15 years and have always paid the mortgage on time so I would imagine I'm just the sort of customer they want to keep. Hence the three options I was offered last week. However, you may recall that when I asked whether they had anything to offer, they threw this at me:

I can either have a straight 0.95% above base rate for 10 years – no arrangement fee and no lock-in period. Or I can have a two-year discount deal of 2.2% in the first year and then 1% in the second year although I'll have to pay an arrangement fee of £250. Or else I can have a straightforward two-year fixed rate of 5.35% - if I pay the arrangement fee of £250, of course. And that's just for a flexible mortgage!

The trick is to cut through the jargon and ask them for the numbers. I made my lender work out what the monthly payments would be for each of the three new deals so that I could see what would actually be going out of my bank account each month. Be sure to make your lot do the same – it's so much easier to see the wood for the trees that way and you can do it over the phone. Since the economy, nationally and internationally, seems to be in a state of flux at the moment, I wasn't looking for anything that would tie me in for longer than a couple of years and, with the numbers in front of me, I was easily able to work out which one would save me the most. (As it happens, I went for the first option, which has the added bonus of allowing me to tread water at a cheaper rate until something better comes along).

Another important question to ask, of course, is the one about redemption penalties. Assuming your current deal doesn't have redemption penalties following on from the discounted period - make sure your new deal doesn't either. It's all very well them tying you in during the special deal but locking you in after that period is a No-No in my view.

It really depends on the size of your mortgage as to whether it may be worth switching lenders. As I said last week you need to weigh up the costs. If you move to another lender, you will have, more or less, the same costs as you would have for moving house, except for the Stamp Duty. A few such as Intelligent Finance will pay most of those fees for you as an enticement to switch to them but in my case, IF's discounted deal only lasts for six months and, as my own mortgage is so small, it wouldn't be worth it for me. But, if you stand to save thousands, and people with large mortgages often do, then such deals are well worth considering if it's not going to cost you much to transfer.

Make sure you read the Remortgage section of our Homeowning Centre and, don't forget to have a look at the Mortgages board too. Those posting there often discuss the current deals on offer so you can always ask them to help you check the numbers if you're not sure which way to go.

For more information on remortgaging, have a look at the relevant section in our Homeowning Centre.