Remortgages

Remortgaging is a term used for when you change mortgage deals, hence the term remortgage. A remortgage takes place when you change your current mortgage, either by switching mortgage products with your current lender or by changing your lender completely.

Remortgaging has both advantages and disadvantages and may not be suitable for everyone, as it all depends on your circumstances. So let’s have a detailed look at everything to do with remortgaging.

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Should I remortgage?

The number one reason to remortgage is to simply save money. A mortgage is usually the largest financial commitment for any individual and a simple remortgage could lower your interest rate, saving you money every month.

If you’ve built up equity on your property, a remortgage may allow you to release additional funds. This could be to fund a number of things, such as trying your hand in the buy to let market or spending the funds on home improvements, the choice is yours. We’ve listed some more reasons why remortgaging might be a good idea.

You can read more on using a remortgage for home improvements here.

Lower your monthly mortgage payments

If you feel as though your mortgage rate could be improved, you could consider remortgaging to a better deal. It’s worth mentioning that if you’re tied into an existing deal then some lenders may have an early repayment charge of your existing loan in addition to an exit fee.

The switch could still result in you making a huge saving, so you’ll need to crunch some numbers to see if it’s a viable move to make. You can also speak to one of our expert advisors to see if it’s worth remortgaging to a better deal to save you money going forward.

Your current deal is coming to an end

Whether it’s a residential or buy to let mortgage, the best rates are usually offered for only the first two or first five years, irrespective of your mortgage term. Once the initial term is over, your lender will place you on their standard variable rate (SVR), which is usually higher than your current rate and the latest rates available on the open market.

If you find yourself in this situation, start considering other best buy deals around three months before your current deal comes to an end, as it could save you a lot of money.

Your interest rate may go up

This is particularly related to tracker rate mortgages. If you have a tracker rate mortgage, your interest rate follows the Bank of England base rate. If you have an indication that the Bank of England base rate will go up, then this may be the reason you need to get a fixed rate mortgage.

Please note, predicting the movement of the Bank of England base rate is not easy and there’s a lot of conflicting opinions based around this.

You bought a property for cash

If you purchased a property outright for cash, you may want to free some of the funds tied up in the property. This is usually quite straightforward for a lender as the borrower already has an asset which they can place a mortgage on. If your home is ‘mortgage-free’, this would be classed as an unencumbered home. Read more about unencumbered mortgages here.

The value of your home has increased

If the value of your home has increased quite considerably then you may want to remortgage. If for example, the value of your home has increased from £100,000 to £150,000 since you took out your mortgage, a remortgage would allow you to cash in on the additional equity you’ve built up.

If you remortgage to a higher amount and ‘sell’ some equity back to the lender, you’ll probably be in a lower loan-to-value ratio and be eligible to get much lower rates. It’s something that takes careful calculation before doing. Having enough equity may even allow you to remortgage and buy another property.

Mortgage over-payments

You may want to pay more money each month, however your lender may have restrictions in place stopping you from doing so. By remortgaging you may be able to reduce the size of the mortgage and get a better rate.

Mortgage over-payments are quite common where individuals have inherited money or landed a higher paid job or promotion. However, carefully consider the early exit fees that your current lender may charge you.

When you shouldn’t remortgage

Remortgaging isn’t for everyone and really does depend on your individual situation. Take a look below at a few situations where remortgaging may not be a good idea.

Your mortgage has a big early repayment charge

Check with your lender before making any plans to remortgage, as most will have exit fees for leaving the mortgage early. If you have a huge early repayment charge, then it might not suit you to remortgage.

Some lenders may allow you to switch to a different product and may reduce your early repayment charge for the privilege. Consider all your options and really crunch those numbers before remortgaging. This is why it’s vital to do your homework before choosing a particular mortgage in the first place. Our expert mortgage advisors will always make any additional lender fees clear to everyone before committing to a mortgage.

You don’t have much mortgage left to pay

If the majority of your mortgage has already been paid off and it falls below a certain amount, then it may not be worth remortgaging. If the remaining balance of your mortgage is around £50,000 then lenders tend to charge higher fees. If the amount is really low, for instance £25,000, most lenders will deem it too small of an amount to mortgage. There are other alternatives, such as taking out a lifetime mortgage, which may be more suitable if you’re coming to the end of your mortgage term.

You don’t have much (if any) equity

If the value of your property has dropped, you may have little or no equity in your property. If you need a mortgage of 90% or more, it will be difficult to find a better mortgage rate. That being said, it doesn’t mean it’s impossible.

Speak to your current lender or an expert mortgage advisor to see if there are any rates that could save you money. If the value has dropped enough to leave you in negative equity, then it will be very difficult and near enough impossible to remortgage in order to save you money.

Negative equity is where your debt is higher than the value of the property, so the only thing you really can do is continue to make your mortgage payments until house prices in your area start to rise.

You’ve run into some financial problems

If you’ve run into some financial difficulty, it may have had a negative impact on your credit file. When you remortgage, your new lender will usually carry out another credit check and check your financial position. It can be difficult to remortgage with bad credit, however our expert mortgage advisors may be able to secure you a remortgage as they work with lenders who specialise in this field.

You’re already on a great mortgage rate

It may not be worth remortgaging as your current deal is already one of the best. As mortgage products and rates are always changing, it’s always worth knowing what products are available in case you wish to switch.

Remortgaging isn’t simply about rates. You really need to take all of the above into consideration.

What type of remortgage deal should I choose?

Fixed rate mortgages

If you’d prefer to know exactly what your monthly mortgage payments will be, it’s best to get a fixed rate mortgage. Fixed rate mortgages are usually for two to five years and sometimes even longer. This enables you to plan and budget more accordingly as you’ll know exactly how much you need to pay and for how long. 

Sometimes mortgage rates may fall further, meaning you’re locked into a higher mortgage rate than most mortgage deals that are readily available on the market. As it’s a fixed term mortgage, the chances are you’ll be unable to end the mortgage early without paying an early exit fee such as an early repayment charge.

Tracker rate mortgages

Tracker mortgages follow the Bank of England base rate. As the base rate has been so low, in recent times lenders have their own interest rate in addition to the Bank of England base rate. The tracker mortgage will track the base rate, so if it goes up or down, so will your mortgage rate.

Capped rate mortgages

Capped mortgages are not fixed but follow variable rates. However, the rate can be capped if it exceeds a certain limit. This is useful for knowing that your mortgage will never exceed a certain amount, providing you with additional security. Do bear in mind that capped rate mortgages are often at higher rates than fixed rate mortgages.

Discounted mortgages

Discounted mortgages generally offer a discounted percentage off the lender’s standard variable rate. As the rate is variable, again your payments could either go up or down without having a capped limit. This means mortgages could initially appear attractive and they could well remain that way, although there is a risk that the rates could increase to a level you’re not prepared for.

Offset mortgages

Offset mortgages operate by offsetting your savings against what you owe on your mortgage. This then reduces the overall amount of interest that you need to pay. 

For instance, if you have a £100,000 mortgage and £50,000 in savings, an offset mortgage would allow you to only pay interest on the £50,000 difference. The advantage of this is that it enables you to pay off the mortgage a lot quicker. To be eligible for an offset mortgage, your savings would also need to be kept with the same lender that’s offering you the mortgage. 

Offset mortgages do generally have higher rates than other types of mortgages, so you will have to look carefully at whether or not this is the right type of mortgage for you.

How can I get the best remortgage deal?

With so many different rates, products and mortgage best buy deals out there, there’s a lot to choose from. A mistake that a lot of people make is simply going for the best mortgage rate, missing a better overall deal in the process. When remortgaging, it’s important to consider the overall cost of the mortgage over the duration of your mortgage term.

Look at more than just a headline rate

Sure, a 1.85% rate initially appears better than a 2.25% rate, however this doesn’t mean that it’s a better deal. The rate is simply the percentage of how much interest you’re being charged, however it doesn’t take into consideration other fees and charges that may be attached to your product. Below are some other fees to take into consideration

Arrangement fees

Some lenders may charge an arrangement fee, which they’ll require you to pay either upfront or they’ll add the cost of the fee on to your mortgage loan. This can drastically impact your headline rate, meaning you’d be paying more with the headline rate, as opposed to a slightly higher rate that doesn’t have an arrangement fee.

Not all deals carry arrangement fees and although they do tend to be at a slightly higher rate, they may be cheaper across the overall term of your mortgage. If you’re only borrowing a small amount, then it may be more viable to look at products without arrangement fees attached.

Other lenders fees

Lenders may also charge you for a mortgage survey of the said property in question. Lenders will always carry out a mortgage valuation, however on occasions may or may not charge the borrower for doing so. Be sure to check if your lender is charging you for the survey and the cost involved.

There are also other admin fees that lenders sometimes attach to their mortgage products, such as telegraphic transfer fees, which are usually quite nominal but worth knowing before you commit to a product.

Fee-free remortgages

There are some lenders out there that won’t charge any fees for remortgaging a property. This is because a remortgage has less risk attached and the process is a lot simpler than buying a property. In basic terms, a remortgage can be just a case of switching a mortgage on the property from one lender to another. This is easy business for lenders and for that reason alone may offer a fee-free remortgage.

If you see a remortgage deal that includes a free valuation, free legal services and no product fees, still do your homework and don’t rush into a deal before really looking at the bigger picture.

The power of equity

When remortgaging, equity is your strongest asset. The more equity you have in your property, the lower risk you become to lenders, so you should have some great mortgage products to choose from. If you little or no equity, then as mentioned earlier on, it probably isn’t best advised to remortgage.

Choosing the right mortgage term

The term of your mortgage depends highly on your budget and financial stability. An average mortgage term is 25 years and is probably the most popular. There are longer terms such as 35 and even 40 year terms, however longer terms don’t seem as attractive as a lot of people would like to be mortgage free later on in their life.

If you’d prefer to save more money on a month to month basis, then a longer term may appear more attractive, as the mortgage is spread out over a longer term. If you have a monthly budget in mind, it’s best to check what your monthly payments will be for both shorter and longer terms, so you can pick a term accordingly.

If a 25 year term suits your budget, then there’s no reason to stretch your remortgage to anything longer, as you’ll be paying more interest over a longer period of time. This is only advised if a shorter term exceeds your budget.

How to remortgage

The best thing to do first of all, is to check your current deal and if you’ll be liable to pay any fees or early repayment charges. Once your satisfied that you still want to remortgage, speak to an advisor who has access to the whole mortgage market, so they really can find you the best deal going.

Speak to a mortgage broker

No matter whether you’re remortgaging or getting a brand new mortgage, heading straight to your current lender or bank and taking the first product offered isn’t always the smartest move. As obvious as it sounds, that’s exactly what a lot of people do.

Shopping around for a deal that suits you is something that you should consider, as mortgages are a long-term financial commitment and spending that extra time could save you thousands over the years. Finding a great mortgage deal can be time-consuming and tricky, as it’s not just about the best rates as explained.

An experienced mortgage advisor could do all of this for you and may be able to offer you exclusive deals that can’t be found on the high street. Great mortgage advisors will cherry pick the best deal out of thousands of mortgage products and handle the switch from start to finish. They’ll do all the number crunching for you, ensuring you really are getting the best deal going.

Our expert mortgage advisors are always available to answer any questions or guide you through the remortgage process.

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