/ Mortgages

A guide to Remortgaging

Mortgages are the biggest debt most of us will take on in our lifetime. So it makes perfect sense for us to be constantly on the lookout for ways to reduce the amount of interest we have to pay. A smart way to do this without FOMO(Fear Of Missing Out) is to plug your current mortgage into a Mortgage management and switching service which will compare all the variables concerning your mortgage and let you know when to switch to a cheaper deal which could save you thousands of pounds per year.

There are a few times when remortgaging is a bad idea But let’s take a look at the few times when remortgaging is a must:

You want to overpay your mortgage:

In a scenario where you want to overpay it might be worth looking into remortgaging and using the overpayment as an additional deposit. This will work especially if your current Lender does not accept overpayments or the overpayment limit is incredibly less than the amount you want to overpay. By doing this you will essentially reduce your loan size and be eligible for a much cheaper rate as your LTV will fall.

Your house value has risen:

This is always a good time to remortgage as you essentially have reduced your loan to value and will fall into a cheaper LTV bracket and hence be eligible for cheaper rates. Be careful not to rush things as your new Lender must agree with this new rise in value for any of this to go through smoothly.

Your fixed rate introductory phase just finished:

This is another good time to remortgage as you could potentially be walking straight into a high SVR due to your introductory period ending.It is worth checking if there are cheaper rates than you are currently on and if the exit fees and early repayment charges outweigh the benefit of switching. Mortgage management and switching services should handle this for you.They will indicate if switching is worth it and with which lender and product.

You want a flexible mortgage:

Flexible mortgages might allow you miss payments, combine your savings account as an offset mortgage or even bring in a guarantor which may allow you to borrow more.Flexibility might however come at a cost so be mindful of this.

You are on a variable rate:

Variable rate mortgages move along with the interest rate set by the bank of England. If you are worried that interest rates are going to rise or there has been some indication by the bank of England that the interest rate is going to rise then moving to a fixed deal might be a good idea. Be sure to check with your current Lender first as this might be the cheapest option.

You want to borrow from equity in your home:

borrowing money from your current mortgage lender is common for things such as home improvements and buying a new car. Your lender will ask to see evidence on what the money is being used for and may reject your request if they don’t feel comfortable.In this case you can always remortgage to a new lender.You should always consider the fees the new lender will charge you for a new mortgage.

Remortgaging should always be planned weeks, if not months in advance. As it involves the same steps you took when planning a mortgage. Your credit score is critical and you must check this to ensure it is good enough.If it isn’t then take steps to rectify it.

5 times you shouldn't remortgage

Remortgaging isn't always a great idea.

Here are a few times when it’s best to put your time to better use:

Your Mortgage affordability has changed:

This is when your credit score has gone down or your net income per month has fallen.It is always worth checking your credit file and following a strict pre mortgage guide before approaching a new lender so to avoid causing a more detrimental effect to your already bad credit score. It is worth following a few tips to get your credit score up before seeking a remortgage.

Your mortgage affordability could have changed due to a few things such as new commitments e.g family, cars or maybe it’s that annual trip to Marbella. Whatever the case the lender no longer sees you worthy of a new loan. In any case, it might not be your situation has changed but rather the Lenders criteria have changed due to new regulation or economic factors.

Negative equity:

Seeking a remortgage with negative equity isn’t really going to get you places.This can occur due to your house price dropping below the current value of your home.Unfortunately, in this case, you only have to ride out the storm.

Little equity:

If you don’t have enough equity in your current home then it might not be worth remortgaging as the LTV will not move significantly. In any case, it is worth plugging your mortgage details into a Mortgage management and switching service that currently monitors your mortgage and your current affordability to let you know if switching to a cheaper deal is worth the hassle.

Your exit fees and early repayment charge is high:

This can be the case if you are on a fixed rate mortgage or have a mortgage with an introductory offer. In this case, there is little you can do but wait out the time frame where the charges apply.It is worth comparing the cost of remortgaging to the savings made to see if you have net savings. In this case, it totally depends on just how much the net savings are and if it’s worth your time. In this case, it is worth seeking a better deal or remortgage with your current lender. Just try not to get locked in for too long again…in case a better deal is around the corner from a different provider.

Your debt is too low:

Believe it or not.Lenders have a baseline which they will not lend beneath. In the case, your debt is too low the fees incurred with remortgaging might be too much in comparison with a debt.

You are already on an excellent rate:

Well, this really speaks for itself. If you are already on the best rate possible then you can only wait for rates to go down. In any case, it is worth lugging your mortgage to a mortgage management and switching service to monitor and switch your deal when a cheaper one becomes available.

The True cost of remortgaging:

As important as remortgaging is, One must always be conscious of the fees involved with remortgaging.

We break it down into two bits:
Costs of leaving your current mortgage
Costs of getting a new Mortgage

So what are the costs of leaving your current Mortgage:

Exit fees:

These are the fees you pay to the Lender on clearing the debt of a current mortgage in full before the initial term.It is also known as a “deeds release fee”.It is, in essence, an admin charge and some lenders do collect this payment at the beginning of your mortgage. If you are charged an exit fee when paying off a current mortgage then it is worth checking that you haven’t already paid it in the beginning.
You should also refer to your key facts illustration which will have more specifics on how much you will be paying and other relevant information regarding the exit fee.

In summary:

How much? 1%-5% of your outstanding mortgage
When do I pay? If you exit your current tie-in deal early
Who do I pay? Your existing lender
Will I always have to pay this fee? No
Do I need to pay upfront or can I add it to my mortgage? Either

Early repayment charge:

Early repayment charges are as they imply, charges for paying early. This charges usually reflect when a borrower(you) have overpaid more than your agreed monthly amount. This is, of course, the case when you end your loan agreement as you essentially settle the debt in full by overpaying the outstanding debt in a shorter time frame than agreed thereby denying the current lender of interest earnings. This charge is usually implemented where introductory offer deals are given to borrowers and can be especially high if you are still in the introductory offer phase of your mortgage.It is also prominent for fixed rate mortgages.

The early repayment charge can either be paid by funds you have or by increasing the mortgage you are getting from your new lender.
To avoid paying the early repayment charge you can usually simply wait until the term which the charge covers has passed and then remortgage.
Just be aware that increasing the loan size to cover the cost of this charge will increase your loan-to-value ratio, which could push you into a more expensive band.

In summary:

How much? 1%-5% of your outstanding mortgage
When do I pay? If you exit your current tie-in deal early
Who do I pay? Your existing lender
Will I always have to pay this fee? No
Do I need to pay upfront or can I add it to my mortgage? Either

Costs of getting a new mortgage:

Arrangement or product fee:

This is usually added to the mortgage for illustration purposes and spread over the term of the loan so as to reflect the true cost of the mortgage and make it easy to compare.

Lenders will usually give you the option to pay that fee upfront or add it to the loan. Be aware that adding it to the loan will incur interest charges on that fee for the lifetime of the loan.

But a swift way to outsmart the lender on this occasion is to overpay on your monthly payment for your mortgage in your first few months as lenders typically allow you to overpay 10% of the outstanding debt per year.

In summary:

How much? £0-£3,500
When do I pay? Either on mortgage application or add it to the loan
Who do I pay? Your Lender
Will I always have to pay this fee? No
Do I need to pay upfront or can I add it to my mortgage? Either

Valuation fee:

This fee you paid when you get a new mortgage.This fee is sometimes covered by your new lender or if it isn’t you can pay between £200-£500.

Lenders always carry out a valuation on the property but in a remortgage, it could be less strict and therefore cheaper.A valuation fee is charged when this is done.

In summary:

How much? On average £200-£500
When do I pay? When you apply (often together with the mortgage booking fee and mortgage arrangement fee)
Who do I pay? new lender
Will I always have to pay this fee? No, most lenders will pay it for you.
Do I need to pay upfront or can I add it to my mortgage? Pay upfront

Booking Fee:

Some lenders may charge a mortgage booking fee to secure a fixed-rate, tracker or discount deal – it’s sometimes also called a non-refundable application fee or a reservation fee. It usually ranges around £200-£400.

In summary:

How much? £100-£200
When do I pay? On mortgage application
Who do I pay? Your new lender
Will I always have to pay this fee? No, not all lenders charge them
Do I need to pay upfront or can I add it to my mortgage? Pay upfront

Solicitor Fee:

To transfer deeds and change the name on a property, legal work is required. Your solicitor will also carry searches out on the property to ensure everything is fine. Most remortgaging deals will usually offer a free solicitor package so you may not have to pay for this.

In summary:

How much? Usually around £300
When do I pay? Could be anytime during the remortgage
Who do I pay? Your solicitor
Will I always have to pay this fee? No. Usually your new lender will pay
Do I need to pay upfront or can I add it to my mortgage? Pay upfront

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A guide to Remortgaging
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