The process of moving your mortgage from one lender to another, without moving house, is called ‘remortgaging’. Many borrowers use these remortgages to obtain a better interest rate when their previous mortgage deal ends. They can also be used to raise further monies for such things as home improvements.
Many deals from lenders offer an initially attractive interest rate, but these can be short-lived. When the deal is coming to an end it is time to review the mortgages available.
The review process ideally needs to start around 4-6 months before the current deal ends. This allows plenty of time to have a mortgage approved and sort the legal process too.
Your existing mortgage lender may well contact you to try and convince you to switch mortgage products with them. However, you will only be able to choose from their own limited range of offers, whereas a broker can search the market for better deals.
Should you stay with your existing lender?
The remortgages process should begin by looking at what the existing lender can offer you to stay. Sometimes the process to secure a new deal with them can be faster and less hassle. This is because the lender knows you already and will often not need to re-check all of your personal details.
However, if you are unsure whether the lender deals are competitive, you should consult a remortgage broker. They will have access to thousands of offers from alternative lenders and can match the most suitable to your circumstances. They will also compare your current lenders offerings with those available with new lenders. In doing so, they should factor in all of your possible setting up costs.
What if your circumstances have changed?
The last few years have seen many borrowers’ situations change for the worse, with redundancies causing lower income or other financial hardship. On a positive note however, many families may have grown with the addition of children.
At the same time lenders have tightened their criteria as to who can qualify for their mortgages. They thoroughly check ‘affordability’ so if your income has changed, so might your borrowing capacity. All of your new circumstances will be relevant to what you can now borrow.
One thing that happened in 2022 was that interest rates hit new highs. This led to lenders reducing how much they would lend based on affordability criteria – a more expansive mortgage payment means you can borrow less.
When house prices are falling this can reduce the ‘equity’ in the property. This can affect the interest rate you are offered when the loan required represents a large part of the property value. In extreme cases, borrowers can suffer with ‘negative equity’ where the house value is actually below the outstanding mortgage.
Can you raise money for other purposes?
Other reasons for remortgaging include releasing money for home improvements, consolidating debts and making large capital purchases – holiday homes, cars and caravans for example. The amounts raised can often be on a shorter term than the main mortgage, similar to personal loan terms but at much lower rates of interest. With some mortgages you can also ‘overpay’ the required monthly payments, which will pay off the extra money even quicker.
Paying off ‘unsecured’ debts with a secured mortgage could put your home at risk. It is often not sensible to put short term debts onto a long term mortgage either.
However not all lenders will grant extra money for these purposes and so your remortgage broker will be able to find those that will, and can recommend the best solution.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME.
YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.
What should you look for in a remortgage deal?
The headline interest rate is important, but not the only important factor when choosing a deal. How long will you be tied to the lender for? What would it cost if you had to bale out early and suffer an early repayment charge? What is the follow-on interest rate when the new deal ends? Also, a hefty arrangement fee for a mortgage product has to be balanced against how much the deal will save you against a no-fee alternative product.
If you look at ‘best buy’ tables, be sure to check all of the terms and conditions. The term ‘best buy’ usually means simply the lowest rate – and that alone is not a good indicator of suitability for you.
Should you take a fixed or variable interest rate?
Another consideration will be whether to take a fixed interest rate or a variable rate such as a ‘tracker’, which follows movements in the Bank of England base rate. If you are on a fixed income or the mortgage payments take up a large part of your income, then perhaps a fixed rate might be best for you. But for how long? Deals can last 2, 3, 5 or even 10 years. A discussion with your broker will help to identify the best for you. Don’t forget you are likely to be tied in to the lender for at least the term of the fixed rate, with large penalties for getting out early.
The Bank of England Monetary Policy Committee, who set the base interest rate at regular intervals, has increased their ‘vase rate’ a few times in 2022 and 2023. However, the rate may move. Your mortgage adviser should be able to tell you how the variable rate deals linked to this base rate have moved, and how they compare with fixed rates.
What does your mortgage broker do?
Having decided whether to fix or take a variable rate, your broker will then find the best scheme for you for your chosen type of deal. They will have comparison tools to research the most suitable mortgage for any given set of circumstances. They should also have experience to consider non-standard situations, including previous debt problems or unusual income make up.
A measurement we use to check mortgages is the ‘total costs’ of a deal over the product term. For example, if you chose a five year fixed rate, we would calculate the total you would be paying over that five year period including set-up costs and monthly payments. A comparison of this scheme against all others would reveal which proves the cheapest for you.
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