Whatever your reasons for considering a remortgage deal, it’s best to go into it prepared. Here’s our hit list of the five areas to consider before you go ahead.
It’s tempting, once you’ve finally sorted out your mortgage, to keep things simple and stay with the same mortgage provider for life, or at least until you move house. But there are several reasons why remortgaging could be a brilliant move for you.
First, your equity might have gone up, meaning you can either look to borrow more on top of your existing mortgage to achieve a dream or improve your home or reduce your monthly payments, freeing up some disposable income.
Secondly, your current mortgage rate may be coming to an end, pushing you into a higher rate of interest, or freeing you up to find a lower rate. If you do find a lower rate that allows you to pay less each month, you could think about overpayments which could allow you to pay your mortgage off faster.
It might seem like a no-brainer, but remortgaging isn’t suitable for everyone – and circumstances change, so what might work in a couple of years could be less appropriate now.
For example, if you’re already on an excellent interest rate, the expenses of remortgaging might be more than you’d save by moving to a slightly better one.
Equally, you should look at the early repayment charge for moving early. If they are very high, you could be stuck for a while until you find an unbeatable deal.
And if you only have a small amount left on your mortgage, or a few years, you need to weigh up whether it’s worth it. Some lenders have a minimum amount they will lend, and even if they don’t, the early repayment charge and legal fees could obliterate most of the money you save with a new deal.
It’s best to keep an eye on the deals at all times. For example, if you’re on a variable rate while interest rates are really low, but you think there’s a possibility that rates are on the rise, it could be worth it – or if your old rate is really high but you’ve spotted that very low interest rates are now available, it’s time to do some maths.
If you’re on a fixed-rate mortgage, start looking around a few months before your fixed-rate period comes to an end. The legal process can take a couple of months, but an Agreement in Principle takes an average of just 15 minutes with Lloyds Bank. This can give you an idea of whether you could borrow what you need.
Choosing from a range of mortgages on the market can seem bewildering, but if you speak to an expert you’ll find it’s not as complicated as it seems. While there are lots of specific considerations based on your personal circumstances, home value and credit rating, these are some things you need to think about: interest rate, variability and flexibility.
Interest rate. This is the most obvious consideration – if you’re able to reduce your rate by a few percentage points, it can make a huge difference to your outgoings. But a great interest rate could hide other issues, such as early repayment charge for early overpayment, or a big hike after the introductory period. Which is why we should also think about...
How variable the rate is. If you’re on a Tracker or Standard Variable Rate (SVR) mortgage, you might find that while you benefit when interest rates have fallen, any sudden rises could leave you with bigger monthly payments.
The flexibility of the mortgage. This could mean low or no early repayment charge for overpaying up to a certain amount, allowing you to pay extra when you can and even arrange mortgage holidays. It could also mean looking at offset mortgages, which take into account your savings, allowing you to reduce the interest you’re paying each month, without compromising your ability to access your money.
Affordability assessments on whether you could get a mortgage are tightening up, so take an honest look at your finances and check that you’re being realistic, even if you think you know exactly which mortgage will suit you.
The amount of equity you have can also have an influence on the deal you can get. You tend to get a better rate the less you need to borrow, relative to the value of the property – anything under about 60% loan to value (LTV) is likely to see you achieve a good deal.
Your credit score will be a key factor in getting a mortgage offer. It’s worth doing everything you can to keep it high – remember, it can take a while for your financial behaviour to be reflected in your credit score, so it’s not a last-minute fix you can make.
Nowadays, affordability is one of the key issues for lenders, and they have to take your monthly outgoings into account. Consider well ahead whether there are any extraneous payments – it’s a great opportunity to give your accounts a financial shake-up at the same time.
Not all lenders can offer these types of mortgages or features mentioned in the article, so be sure to check first.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.