Remortgaging - Is It Still Worthwhile?
March 2006
'Rate Tart' is the name coined by the mortgage industry for borrowers who switch mortgage lenders chasing lower interest rates. Call them Rate Tarts if must, but they'll be the richer for it!
Mortgage lenders have a derogatory name for people who switch mortgage lenders to follow lower rates - they call them “Rate Tarts”. The author has a much more apt description - Shrewd Shoppers! After all, who spends more for exactly the same product, in this case money, when you can get it cheaper elsewhere? After all a £ from one lender as effective as a £ from another!
The mortgage market is highly competitive and as long as lenders use price as the main weapon in their marketing platform, price competition will encourage remortgagers to follow cheaper deals. Call them Rate Tarts if you must, but they'll be the richer for it!
Mortgage Lenders Are Using Higher Charges To Keep Business
In a response to curb mortgage switching, some lenders have raised their up-front charges and others improved their customer retention programmes. In such a competitive market, accolades will be awarded for the best customer retention programmes but raising up front charges, will simply reduce the lenders market share, albeit on improved profit margins. It seems that lenders still have to learn that carrots are better than sticks!
For example -
- Birmingham Midshires currently offers a 3.89% two year fixed deal
- This looks like a clear bargain until you read the small print - the arrangement fee is not the market average of £500, it's a massive £1,499!
- If you write off the fee over two years at £749.50 per year, it's equivalent to an additional three quarters percent interest on a £100,000 mortgage
So if you are tempted to remortgage you need to do two things -
- Add up all the costs of moving your mortgage. Remember to add in the valuation fee (typically £250 on a £100,000 mortgage), the arrangement fee (typically £500), maybe a booking fee (£50?), legal fees to switch the mortgage (usually around £350 on a £100,000 mortgage), plus the cost of any penalties you'll be charged to exit your existing mortgage
- Now it's time to phone your existing lender - Tell them you are considering moving you mortgage for a better deal.
Unless you put pressure on them, lenders frequently work on the principle that provided they offer a fairly attractive deal, customer apathy will prevail. They rely on the fact that many borrowers will be happy to sit tight and avoid the cost, time and trouble of remortgaging.
So shake their tree and see if a better deals falls out. If they simply offer you their standard variable rate they don't deserve your business!
Summary
Once you have fully assessed the costs of moving, found the best new deal you qualify for, and got your existing lender to quote for keeping your business, you can make the comparisons and a clear decision.
Michael Challiner
See Also
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