Use our UK Finance guide and learn by experience. We outline pitfalls so that you don't have to learn the hard way, as many of us often do.
Mortgage
How to save money on your mortgage
They say a change is as good as a rest. This is certainly the case for some borrowers, who will find switching to a new mortgage deal can knock thousands of pounds in interest payments over the life of their loan.
For anyone who currently pays a lender's standard variable rate (SVR), remortgaging could be a way to save hundreds of pounds a year.
Remortgaging means replacing an existing loan with a new one from a different lender - although it is not uncommon to hear people say they have remortgaged when they have simply taken a new deal from their existing lender.
This is often a good option, as it cuts out the need for a new valuation and searches, and as a result reduces the cost of getting a new mortgage.
Why remortgage?
As a potential remortgagee, you need to establish whether you have anything to gain by moving your mortgage.
There are a number of things that can be achieved by a remortgage - you could cut your rate, release equity that has built up in your property, or move from a variable-rate deal to a fixed rate making it easier to manage your budget.
The most popular reason for remortgaging is to reduce monthly repayments. If this is your motivation you should look at the rate you currently pay and then see if there are any better rates on the market.
If there is a better deal, ask your lender if it can offer you anything similar. It should be willing to move you on to a lower rate, unless your current mortgage is subject to early redemption charges.
Early redemption charges
Early redemption charges are levied if you repay your loan in a certain period.
They are often found on deals with a special offer rate upfront - for example a fixed or discounted rate - and are designed to help the lender recoup the costs of setting up the deal. (Or, to be more cynical, these charges allow the lender to recoup in one hit all the profit they expected from the full duration of the loan.)
Usually, the charge is a percentage of the loan you are repaying, or a number of months' interest. Most charges are payable only during the special offer period, but in some cases they are levied beyond that - these are called overhanging redemption charges.
To pay or not to pay?
In some cases it may be worth paying this fee - for example, if you have several years left on a very high fixed rate after the sweet deal has ended.
Often, though, it’s worth sitting tight until you can walk away from the deal without paying hundreds of pounds for the privilege.
Ask your lender for a redemption statement outlining the outstanding mortgage balance and how much you need to pay in charges.
On top of redemption fees, most lenders charge a sealing fee and/or a fee for releasing the deeds, which can add up to around another £100.
What you will save?
Once you have an idea of the cost of getting out of your current deal, you can work out what savings there are to be made.
Using an online mortgage wizard or mortgage calculator, work out what the monthly repayments will be on a new deal, and compare these with your current payments.
Factor in the costs that may come with a new deal - any arrangement fee, valuation fee and conveyancing costs - and you can see whether there are genuine savings to be made.
In some cases there will be very little in the way of upfront costs. Many lenders offer remortgage packages, including a free valuation and free legal work and waive the arrangement fee on new loans.
This can be handy if you have a small mortgage; but on a larger loan it may be better to look for the lowest rate rather than the best incentives.
Remortgaging to release equity
All of the above also applies if you're remortgaging to release equity from your property.
This is an option of your property has increased in value, or you’ve paid off a lot of your mortgage, and is simply a matter of borrowing more than your current mortgage debt.
To do this, you need to earn enough to raise the new loan (see guide to borrowing). Remember, if you’re arranging a loan over a shorter period than your original mortgage you'll need to earn more to raise the same mortgage.
Taking the first steps In most cases, arranging a remortgage will be fairly straightforward and will take much the same form as arranging your first home loan.
Your new lender will ask for paperwork to support your application, including proof of your income and your outgoings. They will carry out a valuation - although on a remortgage the surveyor may just drive past the property - and ask for information about your home.
Some will want you to instruct - and pay for - a local authority search; others will accept title insurance - a policy covering them against anything that would have been uncovered in the search.
Your solicitor will organise the searches, and handle the switch over from your current lender to your new one.
Costs and time
The total legal costs should be much lower than when you bought the property, as there are no contracts to prepare and there is no stamp duty to pay.
However, you should still budget to spend £300-£500, unless your new deal comes with free legals.
It shouldn't take long to replace your current deal with a new mortgage, but if you’re coming to the end of a fixed-rate or discount period you, can start shopping around some months in advance.
Most mortgage offers last for around three months, and if you plan ahead you can have a new deal sorted out to start the day the special-offer rate ends. This means you can hop from one fixed rate to another and avoid paying over the odds for your loan.
