Beware the rising cost of remortgaging

Homeowners have had to deal with five interest rate rises in the past year. But for those anxious about rising monthly mortgage repayments, remortgaging may be the solution.

In particular, those who chose cheap fixed rate deals two ago when the base rate was far lower than the current 5.75% will be keen to take advantage of another good deal.

According to Nationwide Building Society, borrowers with a £120,000 mortgage on a two-year fix at 4.56% would face a hefty increase of £237 a month by slipping onto a standard variable rate (SVR) of 7.75%. But fortunately there is a wide range of mortgage products on the market to choose from, with some deals at under 6%.

Are you looking to remortgage? Maybe to extend your mortgage or just to get a more competitive interest rate?

But before rushing to sign up, work out the cost of doing so to ensure its the best option for you. Get it wrong and it could cost you thousands.

Will you pay a fee to move your mortgage?

With around 6,000 mortgage products on the market, finding the right one is not easy and there are various fees to think about, including arrangement and redemption fees.

If you plan to switch, first check if there are any redemption fees on your current mortgage, as this will affect whether it's worth moving or not. Talking to an expert should help you decide if it's the right path for you.

Sure about your mortgage choices? Want to talk to an expert?

Rising fees

The majority of lenders will ask for an arrangement fee if you take out a new deal, with the lowest interest rates often attracting the highest fees.

So if you see a great rate, don't jump to sign up. An online comparison service will help show the true cost of the loan over the term you require, taking into account the start up fees.

Unfortunately, borrowers are battling soaring arrangement fees along with rising interest rates. Fees have nearly doubled in just two years, with the average mortgage arrangement fee rocketing from £441 in 2005 to £827 now. While a quarter of lenders don't charge a fee, borrowers will face higher interest rates by choosing their deals.

Instead of a flat fee, some lenders now charge a percentage of the loan. This could work out as substantially more for those taking out large loans.

Once fees are taken into account, switching mortgages every few years can be an expensive business.

29 November 2007 © Moneyextra.com

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Our senior editor Robin Amlôt recommends you should consider taking independent financial advice before acting on any article. Please contact us for help with your individual circumstances if any assistance is required.