Before you go ahead and jump ship from your current lender, consider the fact that re-mortgaging to a new lender is not best for everyone. Most lenders will automatically transfer you to the Standard Variable Rate at the end of your fixed or discounted deal. However, it may be possible to switch to another scheme with the same lender, thereby negating the need for additional conveyancing and a valuation. Some lenders even permit you to do this on a fairly regular basis.

Why Re-mortgage?

he number of borrowers switching deals has trebled in last few years. This has happened principally because of four factors or reasons:

Ease of switching

The streamlining of legacy processes and the increasing role that technology has to play in the conduct of financial services business means that it is now easier to switch mortgages than at any point in the past.

Save money

A gradually increasing financial sophistication amongst the UK public has meant that people are slowly waking up to the savings re-mortgaging a property can achieve in terms of monthly outgoings. The temptation of saving hundreds or even thousands of pounds each year is enough for many people to abandon their high-interest Standard Variable Rate and switch to a more competitive deal.

Raise capital

Soaring house prices have left many homeowners sitting on a large amount of equity. Releasing some of this equity can be one of the cheapest methods of gaining large amounts of secured loan finance. Assuming you stay within the permissible Loan-To-Value range, then if you re-mortgage your property for a sum that is greater than the amount needed to repay the original mortgage, then the borrower gets to keep the difference. For many people, this can be the best way of paying for DIY projects, a new car, school fees or some other major expense.

Changing product type

A reasonable number of people re-mortgage in order to change product type. It may be that they wish to move to a current account mortgage, or perhaps get rid of a poorly performing endowment. Re-mortgaging gives you all the same choices as if you were taking out a mortgage for the first time.

How much can I save by re-mortgaging?

It must be remembered that there are costs attached to re-mortgaging, outlined on the next page. However, purely in terms of ongoing monthly expenses, re-mortgaging has the potential to slash a lot of money from your outgoings.

Here are a couple of examples:

1. If you are paying a Standard Variable Rate of 7.5 percent on a 25-year mortgage of £100,000, your monthly outgoings will be somewhere around the £735 mark, depending on the discounts that you initially enjoyed.

Switching to a new 25-year tracker mortgage that is currently charging 5%, your outgoings would immediately fall to a little over £580. This means you would be cutting your monthly expenditure by over £150, potentially cutting your outgoings by £1800 each year.

2. In a more extreme example, the borrower is currently paying 7.7 percent on a 25-year mortgage of £150,000. If for some reason this rate had been paid since the start of the mortgage, the current monthly outgoings would be around £1125.

If the borrower were able to re-mortgage on a heavily discounted two-year fixed rate mortgage charging just 2 percent, then the current level of repayments would fall to just £635. Even if the mortgage then reverted to 7.7 percent, this would still offer potential savings of £490 a month or £11,760 over the two-year fixed rate period. If this money was invested elsewhere or used to reduce the mortgage debt, it could be worth considerably more to the individual.

Costs of re-mortgaging

For many people, the biggest potential cost of re-mortgage comes from redemption fees associated with ending their existing mortgage contract. These will be largest when an early redemption penalty is incurred, but there may be some sort of fairly low redemption fee even if the mortgage is redeemed outside the early redemption penalty period.

Early redemption penalties are likely to be biggest when you are still within an introductory offer period and the rate of interest that you are paying is fixed, discounted or capped. However, some lenders employ an overhand, where the early redemption penalties extend beyond this period. Depending on the policy of the lender and the size of the loan, redemption penalties can cost several thousand of pounds, which would obviously need to be factored into your calculations of whether it is worthwhile re-mortgages. Quite often it is not worthwhile, but you should not rule out re-mortgaging within the penalty period if you are stuck on a particularly high rate or have access to a particularly good deal.

In addition to any redemption fees, there are a number of other costs attached to re-mortgaging your property:

Firstly, the new lender will wish to value the property to ensure it is worth sufficient money to loan you a new mortgage. They will not rely on the valuation of the previous lender and the cost of this is normally the same as for a normal mortgage. However, the good news is that you will not require another survey for your own peace of mind, as you are likely to with a house purchase.

Secondly, there is some conveyancing work to be done as part of the re-mortgage process. Again, the cost of this is not usually as much as with a house purchase, but your solicitor will have to perform new local searches, as the old ones are only valid for 3 months from the date on which they were carried out.

Many lenders will offer some form of re-mortgage package, which entitle you to a refund of your valuation and legal fees on completion of the re-mortgage, provided you use their panel of professionals. If you are considering such a deal, make sure that the package is genuinely free of charge and not offered at the expense of a lower rate of interest. Because the cost of conveyancing and valuations are not linearly related to the value of the property, this type of re-mortgage package tends to be more worthwhile with a lower value property, as the costs represent a bigger proportion of the property value.

Don't forget that when you re-mortgage, you will be moving back to the start of a repayment curve. This means that interest will once again form big part of your monthly repayments and a smaller proportion of your payment is working towards reducing the outstanding capital. Furthermore, most people who re-mortgage generally extend the term beyond the end of their old mortgage. This means that you will be paying interest for longer and may face a higher long-term interest bill, even if you appear to be making short-term savings.