Remortgages – are they a good idea?

Lenders offer special rates to attract new borrowers. Mortgage companies are no different to any other lending institution. They borrow money in the long term money markets and make a profit by lending it out to other people at higher rates. To get new business they are happy to offer an attractive deal. This deal is a loss leader. Once they have that business they bank on the borrower doing nothing when it comes up for review.

Re-mortgages are a time consuming hassle and many busy households do not have the time. Once the deal finishes, and the new payments kick in, the household rapidly adjusts to the new outgoing and the need to act dissipates. This lack of action is how mortgage companies make profits from the vast majority of borrowers. In addition many customers becoming loyal to the company they are with. This confirmation bias is a valuable tool to the mortgage lender. A new lender is a stranger, an unknown, and a potential risk. Humans are notoriously risk averse. Mortgage companies know this.

Remortgaging on a regular basis does involve work. It means sourcing a new lender, with an attractive rate, and applying to that lender, undergoing credit and income referencing, a valuation of the property, and the legal work involved in paying off one loan and drawing down another.

The good news is that a broker can do most of the work and the resulting cost savings can be dramatic. Being disciplined in acting at the end of every product means always accessing the cheapest mortgage available. Lower payments will increase monthly disposable income. Lower payments could be used to increase overpayments on the loan that could in turn reduce the loan term.

Brokers have large numbers of attractive remortgage options available. The worst case scenario for a mortgage prisoner with no moving options available is frequently a better rate with the existing lender.

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Gary Andrews Financial Services is a trading style of Tom French & Associates Ltd Independent Financial Advisers authorised and regulated by the Financial Conduct Authority FRN 185513. Your home may be repossessed if you do not keep up repayments on your mortgage.

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