Austin Davies joins us to talk all about Remortgaging..
Whether you’re buying for the first time, moving, investing or remortgaging we’ve got it all covered.
Listen to the latest podcast below to find out more!
What is remortgaging and how does it work?
It’s effectively taking out a new mortgage with a new lender and paying your old one off.
When is it a good time to remortgage?
There are various different times you can look to remortgage. The most common one is when your mortgage deal’s come to an end. For most fixed rate or tracker deals you sign up for a set period of time, after which you go into the standard variable rate (SVR). This rate is normally a lot higher than your previous interest rate, so you remortgage to save money. Most people look to do this about three months before the deal is due to end.
However, with the talk of interest rates going up over the next few months we’ve seen a lot more interest in getting a new deal secured sooner. Some mortgage offers are valid for six months, so it’s worth looking into. As your broker we’ll do a detailed comparison to see if it’s cost effective to switch, comparing the old interest rate to the new one and exit fees and new product fees so that you can make an informed decision.
Other reasons to remortgage include borrowing more for home improvements – an extension, kitchen, bathroom etc – or debt consolidation. We will compare whether it’s worth staying with your current lender or finding a new one.
As we’ve seen quite a lot recently, house values have gone up, which could mean you might get a better interest rate if your Loan to Value has increased. The Loan to Value is a percentage of how much your property is worth in comparison to your mortgage. The better the Loan to Value, the better the potential interest rate.
Finally, we get a few enquiries from people on interest-only mortgages who want to switch to a repayment deal so that they will eventually own their home outright.
Is it a good idea to remortgage for debt consolidation?
It might seem like a good idea to add a small debt onto your mortgage, and just have one payment going out each month – but if you could comfortably meet that monthly payment it’s often better just to clear it.
Also, if the debt you’re looking to add onto the mortgage is on a low interest rate or nought percent deal, consolidating will cost you more in the long run.
Remember too that loans and credit cards are unsecured – there’s no risk to your home if you can’t pay. But adding these debts to the mortgage turns them into secured debts – so if you fall behind with mortgage payments you could lose your home.
When is remortgaging not a good idea?
Everyone’s circumstances are different. There’s no ‘one size fits all’ approach, but we can give a couple of examples where remortgaging may not be the best choice.
A lot of mortgage products will come with an exit fee and if this is particularly large, it may not be worth remortgaging. You might be looking at getting a better interest rate, but if you are paying a £4,000 fee to end your mortgage deal early, it may not make financial sense.
Another example is where your property has reduced in value. I mentioned earlier that your mortgage interest rate is dictated by your Loan to Value ratio. If the value of the property has come down it may not be a good idea to remortgage, because your interest rate could be going up.
If you have had credit issues since taking out your mortgage you may find it more difficult to get a remortgage. There are lenders that will consider you for a remortgage with credit problems, but at a higher interest rate. So it could make sense to stay with your current lender.
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What remortgage options are available?
When you look at doing a remortgage, you’ve got two options. You can either stay with your existing lender or go out to the whole market. Staying with your lender is known as a product transfer rather than a remortgage.
As brokers we look at both options to see which is more cost effective for you. Your existing lender might have some really great rates and a product transfer is typically an easier process.
But it’s often better to go elsewhere because lenders tend to reserve better interest rates for new clients. The best option depends on your circumstances, and there are a lot of things to consider: how much your property is worth, what you’re looking for, your credit and so on.
Recently, we’ve seen some of the most competitive deals ever – even below 1% which is unlikely to happen again for a long time. For most clients we’re looking at fixed rate mortgages, trackers and offset options. It really depends on your circumstances.
Why remortgage at the end of a fixed rate deal?
When your deal ends you are put onto the lender’s standard variable rate, which is normally a lot higher. It ranges anywhere between about four to five percent, so your monthly payment will go up. By remortgaging, you can use that extra money that you would be paying to pay off your mortgage rather than just giving it to the bank.
That being said, though, one reason you might want to stick with the standard variable rate is because it’s more flexible. So instead of tying yourself into another two, three or five year option, you could stay on the variable rate and have the flexibility to move house or switch deals without charge.
How do I improve my chances of getting a good remortgage?
In my opinion, the most important thing is to start early. That will give your mortgage advisor longer to look at the options and address any challenges.
In the run up to remortgaging, make sure that you pay your commitments on time, including your mortgage, loans, credit cards etc. Make sure you have your direct debits set up – it’s obviously a lot easier to get a mortgage if there are no missed payments on your file. If you think about it from a lender’s perspective, they are deciding whether to lend you all this money and if you missed a credit card payment that might be a concern for them.
Some lenders ask for bank statements as well, so just be mindful of what’s on them. Lenders don’t pry much, but they do tend to notice if you have a lot of gambling transactions – something to bear in mind.
Are there any fees to prepare for when we’re remortgaging?
Aside from exit fees, which we covered earlier, there are a number of charges that may come up:
Broker fee: your mortgage adviser will typically charge you a fee, which will depend on the complexity of the case.
Valuation fee: Some lenders will charge you a fee to do a valuation on the property. Typically on remortgages this is free and can be avoided.
Product fee: An amount you pay the lender to take that particular mortgage. Typically a product with a fee will have a lower rate of interest. Your advisor will do all the calculations to see if the fee is worth paying.
Legal fees: Again these are often paid by the lender as part of a remortgage deal, but in some instances a lender will give you cash back on the mortgage to find your own solicitor.
What advice do you have for someone looking to remortgage?
The benefit of using a mortgage adviser is their experience. We deal with thousands of products from hundreds of lenders and we will compare all the options for you to find the most suitable deal.
We will save you time, money and locate the deals that you will qualify for. You will see a lot of headline interest rates out there from banks and building societies to try and entice you. But these will depend on Loan to Value, and some will have quite high fees. Your mortgage broker will work out which ones are the most cost effective for you.
Some clients’ circumstances can be tricky as well. We have quite a lot of self-employed clients or people with adverse credit. Our experience and relationships with the lenders mean that we will have a good idea from the offset which lenders we might put you with. A lot of our clients have already been rejected by a high street bank – so always speak to a broker for a second opinion.