Big switch can save you a fortune

If you are one of the many people languishing on your lender's base mortgage or standard variable rate (SVR) because you think it would cost too much time or money to remortgage, then think again.

Just make a phone call, fill in a few forms, and you could be hundreds or even thousands a year better off.

In the past five years only 12% of consumers have switched lender, according to the Department of Trade and Industry. This compares to 53% of motorists who have swapped car insurance and 30% of consumers who have switched home insurance.

Remortgaging can be used to raise capital or even wipe out debts. And it's easy, according to advisers.

Lenders should be able to kit you out with your new mortgage within four to six weeks. Some, like Woolwich, even offer a rapid remortgaging service which keeps paperwork to a minimum.

Your first port of call should be your existing lender, as you may be able to negotiate a better rate without having to pay any fees. Also try rival banks and building societies and ring around the mortgage brokers.

But you must do your sums to see if a switch makes sense for you. A lower interest rate elsewhere may be enticing, but it will not be worth making the switch if you have to stump up a hefty redemption penalty to get out of your current deal.

You must also factor in all the charges involved in setting up a new mortgage. You can expect to pay fees of around £900 when you remortgage for £100,000 - £250 in valuation fees, £300 in solicitor's fees and £300 for the lender's arrangement fee. You may also be asked to pay the mortgage indemnity premium which protects the lender if you fall behind with your repayments, a deeds release fee of £50 and a funds transfer fee of £25.

A growing number of lenders are paying these costs themselves to attract more customers, but it is usually at the expense of the interest rate they offer. Again, do your sums before choosing a fees-free deal.

If a borrower with an interest-only loan of £50,000 were to remortgage an SVR of 7.24% with no redemption penalties to the Halifax's base rate tracker, which has a current pay rate of 5.45%, they would save about £1,790 in interest during the first two years.

If they had to pay all the remortgage fees mentioned above, the interest saving would fall to £865 during the first two years.

The impact of fees means you should go for a fees-free deal if you are remortgaging for less than £100,000.

Alliance & Leicester's two-year discount mortgage, which has a current payable rate of 5.24%, no arrangement fee and free valuation, as well as £250 cashback.

With another interest rate cut on the cards some time this year, perhaps you are waiting to see what happens - don't, say brokers.

If you sit tight you could be stuck on your lender's SVR for a further six months.

There already deals where future rate cuts have been factored in, such as GMAC's two-year fixed rate mortgage which has a payable rate of 4.99%. But this is only available to the cash rich - you have to stump up a deposit of 25%. The arrangement fee is £295 and there is a 5% redemption penalty in the fixed term.

London & Country recommends Britannic Money's 5.35% fixed-rate mortgage, which has no penalties at any time as well as a contribution towards valuation, free legal fees and no arrangement fee.