Why would you choose to switch your mortgage?

More than 18 million homeowners have never remortgaged and could be wasting hundreds of pounds each year by sticking with a mortgage deal that is no longer competitive.

What’s the reason for this? Many people are intimidated by facing lenders once again and most are unaware of what exactly remortgaging means.

To put it into simple terms, remortgaging (also known as refinancing) is the process of paying off one mortgage with the proceeds from a new mortgage using the same property as security.

The main purpose of switching a mortgage is to secure a more favorable interest rate from a different lender.

Homeowners may choose to remortgage for various reasons, including reducing the size of repayments, to pay off a mortgage earlier, to raise capital, or to consolidate other debts.

The mortgage market in the UK is one of the most sophisticated and saturated in the world and homeowners should take advantage. For example, you could use your mortgage to consolidate expensive credit card and loan debts and still bring monthly repayments down.

Remortgaging is probably one of the simplest financial transactions you can do and can be easier than switching your bank account. So how do you do it?

Getting an independent mortgage broker is probably the best place to start as they can look at your current situation and see exactly how much you could save by switching your lender.

An independent broker, which may cost you up to £200 or more in fees, will take into account the related costs and fees associated with remortgaging, the size of your mortgage and whether you want a fixed or discounted rate deal.

While the process seems easy enough and looks like you may end up with some spare cash, make sure you check what penalties might apply if you switch away from your existing lender. If you are in a fixed or discounted rate deal there may be early redemption penalties.

On average it takes about four to six weeks to remortgage, depending on the lender, so you need to factor this in if you are coming to the end of another fixed rate or discounted rate deal and want a smooth transition.

Like with any purchase of financial products, homeowners should be cautious when remortgaging and look out for the pitfalls too.  

Brokers recommend borrowers try to resist the temptation to extend their mortgage again when they remortgage to a new deal. If you do not begin to reduce the term of your loan you may still be paying the mortgage after you retire and this is likely to be a considerable financial strain.

Speak to your existing lender first and say you are considering remortgaging and ask what deals it can offer. Some banks and building societies will offer good deals to get customers to stay rather than switching away and it is always worth asking.

If there is only a couple of years left on your mortgage than it may not be worth switching at all unless a considerably better deal can be found.