Remortgaging – Is It Worth Being A Rate Tart?

Maximizing Your Mortgage Savings: A Guide to Smart Remortgaging

Mortgage lenders often use the term “Rate Tarts” to describe individuals who switch lenders to secure lower interest rates. Far from being a deterrent, this term reflects a savvy approach to securing the best deal. After all, the key to financial prudence is to shop around and take advantage of competitive offers.

The Competitive Mortgage Market

The mortgage industry is fiercely competitive, with lenders vying to attract customers through various incentives such as free valuations and waived setup fees. Despite these enticements, the interest rate remains the most crucial factor for many borrowers. As long as interest rates are the primary battleground, those who actively seek better deals—referred to disparagingly as “Rate Tarts”—are likely to benefit.

Lender Responses to Switching

In an effort to deter rate shoppers, some lenders have raised their upfront charges or enhanced their retention programs. While these strategies may improve profit margins, they can also reduce a lender’s market share. For instance, Birmingham Midshires offers a 3.89% two-year fixed rate deal that initially seems attractive. However, with an arrangement fee of £1,499—far exceeding the average fee of £500—the true cost of the deal equates to an additional 0.75% in interest on a £100,000 mortgage when spread over two years.

Steps to Evaluate Remortgaging

If you're considering remortgaging, follow these steps to ensure it is financially advantageous:

1. Calculate All Associated Costs:

   • Valuation Fee: Approximately £250 for a £100,000 mortgage.

   • Arrangement Fee: Typically around £500.

   • Booking Fee: About £50.

   • Legal Fees: Roughly £350 for a £100,000 mortgage.

   • Redemption Penalties: Fees incurred for exiting your current mortgage early.

2. Negotiate with Your Current Lender:

   • Contact your existing mortgage provider and inform them that you are considering switching due to a more attractive offer. Lenders may offer to match or improve upon the new deal to retain your business. Often, they will only present a better offer if you express your intent to leave.

Making the Decision

After gathering all relevant cost information and potentially securing an improved offer from your current lender, weigh the total costs against the potential savings from a new mortgage. This will help you determine whether remortgaging is worth the effort and expense.

By being proactive and well-informed, you can make the most of the competitive mortgage market and potentially secure a more favorable deal that aligns with your financial goals.