remortgaging pitfalls
There are a number of pitfalls with remortgaging which could
either wipe out the savings you thought you might make by doing so,
or make your finances more inflexible in the future.
Paying to escape your current lender
If your current mortgage comes with repayment penalties, check
with your lender as to how much you will have to pay to redeem the
mortgage early.
Tie-in periods usually last for the same term as the duration of
the deal so a five-year fix will normally come
with a five-year tie-in. Sometimes repayment penalties are ‘tiered’
which means that the penalty charged decreases as each year
elapses. However, a few come with ‘overhang penalties’ which means
that the penalties continue to apply even after the end of the
discounted or fixed rate deal.
It is important to do your sums carefully and take all costs of
remortgaging into account before deciding to remortgage as you
could find that it costs you more to switch than to stay
put.
How long do you really get on your new mortgage deal?
When switching to a new deal that has a restricted shelf life –
such as a two-year tracker – the two years may not necessarily
start from the day you complete on your remortgage.
Deals often carry an expiry date based on their launch date, not
on the date your mortgage actually starts. So you might find a ‘two
year’ deal only lasts one year and nine months in practice,
if your repayments commence three months after launch date.
The temptation to increase your loan when remortgaging.
Some homeowners take a ‘further advance’ against their property
when they remortgage, using the extra funds to pay off more
expensive unsecured debt or for home
improvements.
Bear in mind that this usually only makes financial sense if
house prices continue to rise. Although house prices doubled or
trebled in some areas during the 1996-2006 house price
boom, you cannot count on this continuing indefinitely.