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Remortgage – What You Need to Know
Remortgaging involves switching your current mortgage to a new and improved deal, either with your current lender or another provider. When you remortgage you do not move house, you simply secure a new mortgage against your existing property but the application process is quite similar and no less involved. It’s quite a common process though – you might be surprised to learn that as many as 1 in 3 of all mortgage loans are remortgages.
If you are thinking about remortgaging your home you will probably have a lot of questions about the process, so here we answer some of the most common ones asked by our clients;
Why Should I Remortgage?
There are many benefits associated with a remortgage, the most common being a desire to save money, by reducing your monthly payment or to raise money by releasing the equity you have in your home.
To reduce your monthly payments you could;
- Remortgage and secure a cheaper mortgage interest rate if you are currently paying your lender’s Standard Variable Rate SVR.
- Find a new fixed-rate mortgage if your existing mortgage deal is coming to an end
- Remortgage because the value of your house has increased sharply and you can now secure a lower interest rate deal because of this.>
You might also want to remortgage if you want to borrow some more money or find a new mortgage deal so that you can pay off your mortgage sooner, even if you have to pay more every month.
One of the most common reasons for remortgaging is to raise money for home improvements, although this can be costly in the long run, especially if there are exit fees or early repayment charges to pay when settling your existing loan. A short term bank loan at a higher interest rate might be a better bet.
If you are thinking of remortgaging in order to switch from an interest-only loan to a repayment one, ask your existing lender first. Most will happily allow you to do this without remortgaging. On the other hand, if you are thinking of switching to an interest-only mortgage the mere mention of the idea will set your lender’s alarm bells ringing so always ask for advice from a mortgage adviser if you find yourself in this position.
Is there any reason to not remortgage?
The main reason you might want to dismiss the idea of remortgaging would be if your existing loan balance is relatively small, say in the region of £50,000 or less, as the fees and charges payable might swallow up any potential savings you might make. If your balance is even less than that you might struggle to find a lender to even consider the idea.
It’s always worth checking how much it is going to cost you to exit your existing arrangement as this may outweigh the advantages of remortgaging altogether if it is relatively high.
If your own situation has changed since you took out your existing loan, for example, your income has reduced, you might want to think twice before applying for a remortgage since you could waste quite a lot of time and effort only to end up having to stay with your current arrangement.
You’ll find it hard to get a new loan if you have little equity in your home too.
Are there different types of remortgages?
The products available to you when remortgaging are similar to those of the first mortgage on a property, with both repayment mortgage and interest-only options to consider. The main ones to think about, ideally before you sit down with your lender or mortgage adviser to discuss them, are;
- Standard Variable Rate SVR Mortgage – These types of loans are common and involve paying a variable interest rate, set by the lender, for the whole term of the mortgage. The advantages of an SVR mortgage are that they tend to attract lower arrangement and exit fees, however, as the lender can decide when and by how much to change the interest rate, they are considered by some to be a risky choice.
- Fixed-Rate Mortgage – With a fixed-rate loan your interest rate is set in stone for a set period at the end of which your loan will attract the terms of the lender’s standard variable rate. A fixed-rate loan will keep your costs down, especially if interest rates are low when you take it out, but early repayment charges might be prohibitive.
- Tracker Mortgage – A Tracker Mortgage is similar to a Standard Variable Rate loan but, because the interest rate you pay is tied to the Bank of England base rate, it is less subject to the commercial whims of the lender. The interest rate on a Tracker Mortgage is normally set at a percentage point or two above the prevailing base rate.
- Discounted Variable Rate Mortgage – this type of loan offers a discount on the lender’s Standard Variable Rate for a set period, normally 3 years or less. This is great when you want to keep costs down in the early years of your loan but bear in mind that you might see a big jump in payments when the discounted term comes to an end.
Getting Ready to Remortgage – How to Boost Your Chances of Getting the Best Remortgaging Deal
To boost your chances of getting the most suitable mortgage deal, you will want to check your credit and make sure that your credit score is in good order. This is best done by checking with one of the most popular credit agencies, such as Experian or Equifax who will also be able to help you to improve your score too.
At the same time, you will need to make sure your finances are in a good state generally and to be able to demonstrate this to a potential lender. When you are in the process of applying for any loan it is a good idea to keep your accounts in credit if you possibly can, and not take advantage of any overdraft facilities you may have access to. It’s also not a good time to be spending erratically, so, if your bank statement normally shows not much more than your weekly shop and other basic living expenses, don’t choose this moment to go out and buy the latest luxury handbag or your dream sports car!
Finally, make sure that you don’t apply for a new credit card or any other form of credit before you apply to take out a new mortgage deal.
What Remortgage Lender Should You Choose?
As well as deciding which type of mortgage to opt for you will need to decide whether you are going to stay with your current lender or look for an alternative source of funding. By considering a remortgage with a new lender you are giving yourself a better chance of locating an improved deal.
As mentioned above, if you can demonstrate a good credit record and approach a lender with good equity in your property you stand a good chance of being able to secure a lower interest rate when you remortgage, saving you thousands of pounds over the term of your loan.
It can also make sense to remortgage with a different lender if your plan is to pay off a big chunk of your mortgage without incurring any overpayment fees, which you may be liable for with your existing mortgage. Overpayment fees are normally charged by lenders if you are still within the period of an introductory deal and paying something other than the standard variable rate.
There can be other incentives as well, such as free valuations and legal work if you remortgage with a new lender, so there are a lot of things to consider, which is where the services of a reputable mortgage adviser, authorised and regulated by the financial conduct authority, could help.
What Fees Will There be?
You will need to factor in any fees that you will be charged by your existing lender for remortgaging your property. Most mortgage lenders will charge an early repayment fee, which tends to be between one and five percent. In addition to this, your new lender will require a property valuation to be completed and may themselves charge an arrangement fee and make an administration charge for setting up the new loan. Because there will be some work for solicitors to carry out, you should budget for legal fees too.
How do I Get the Best Remortgage Deal?
As you can tell, there are a lot of things to consider when you are remortgaging your home and it can be a stressful time too. Making use of the services of a mortgage broker or adviser can help you to save time and money whilst guiding you expertly through the application process.
Remember that a mortgage broker will have many years of experience of in the process and may even have access to remortgage deals that even the lenders themselves cannot access, saving you money in the long run.