Anyone who has applied for a mortgage will know that it can be quite a long process to finalise. There is much paperwork to gather and check, spending habits to scrutinise and fees to be paid.
Once the transfer of your first mortgage is complete, however, this does not automatically mean ‘plain sailing’ for borrowers. For many people, fixing a rate of interest for a few years only is a good option. But at the end of that set period, homeowners need to ask themselves;
Do I stay with my existing mortgage lender, or do I go?
This post will take you through some of the things you need to consider if you want to find the best remortgage deals for you.
Despite the benefits of remortgaging your home, there are some downsides to consider before making any applications for a new mortgage. These include;
The first and most important step in remortgaging is reviewing your current finances and deciding from there if remortgaging is a good idea, and what kind of deal would best suit your needs.
Ask yourself, do I want to save money in the long-run, pay off my mortgage quicker, make lower monthly repayments, have more flexibility on payments or finance renovations?
After you have done this, try speaking to an independent mortgage advisor. They will be able to tell you what options are available to you and most importantly, how much they will cost.
Quick Tip: It is a good idea to start thinking about a new mortgage a few months before your current deal ends. The application and legal process can take a few weeks to finalise and you ideally want to move seamlessly into the new deal, with no switch to your current lender’s standard variable rate.
A mortgage broker will also be frank, if they feel like your circumstances are not ideal for remortgaging at this time, they will tell you. Take a look at the example below to compare two scenarios. One, where remortgaging is a good idea and another, where remortgaging costs more than the potential savings yielded from getting a new deal.
Graham is nearing the end of his mortgage term. He has three years to go and an outstanding balance of £14,000. His current rate is 4%, but he has seen a mortgage offering 3% and he is considering a switch to this new deal. The cost of exiting his mortgage is £500 and the difference in interest payment would be £140. As this saving is less than the cost of a remortgage, it is advisable for Graham to stick with his mortgage until the end.
Elaine has five years left on her mortgage and an outstanding balance of £61,000. She is also currently on a 4% rate and she has seen the same 3% deal advertised as Graham. She is also considering a switch in plans. The cost of the legal work, survey and exit fee from her current deal is also £500. However, with the amount outstanding on her loan and the potential saving she could make (£610), Elaine would benefit from remortgaging.
If you have sought advice, shopped around and spotted a good mortgage deal, inform your lender and find out if they can offer you a similar mortgage product. If they can, you could potentially save some money in the application process.
If they, for whatever reason, cannot match your preferred mortgage deal, it may be advisable to switch, if possible.
If you took out your mortgage before the financial crash of 2007, and haven’t refinanced since you may not have noticed that lenders are now a lot stricter in approving loans. For example, if you are self-employed, you can no longer declare your income, you will need to show proof. ‘Stress Tests’ are also strictly enforced. This is where lenders test your ability to pay a mortgage in difficult financial circumstances (e.g. sudden redundancy, pregnancy, rising interest rates etc…). If you do not meet their lending criteria, a ‘hard footprint’ is left on your credit report. Too many hard footprints and mortgage rejections may start to have a negative effect on your credit score.
This is another reason why seeking independent advice can be helpful. Brokers will make the application for you, which means if they don’t think you are suitable, they will not process the application on your behalf. Saving you time and potential missteps in your credit report.
Read more in our Benefits of Using Brokers Guide for more on how they can help. When making applications, it may also be helpful to look at guides to improving your credit rating. This guide to applying for your first mortgage also provides information on the costs of taking out a mortgage and what paperwork is required.
Once an application for a mortgage is submitted, the lender will send a valuator, to assess how much your home is worth. It is at this stage that you will need to inform your solicitor or legal representative and tell them that you’re remortgaging. Once you have been approved by the lender, you will be sent a mortgage agreement in principle. You will then have to pay the fees (if applicable) and pay your solicitor/conveyancer/ broker for arranging the new mortgage on your behalf.
After this, you will receive a mortgage completion statement, with any new funds added to your mortgage loan.
One of the benefits of remortgaging is the option to release money for further investment, such as buying a home outright, to rent out, or placing a deposit on a buy to let property in order to secure a suitable mortgage.
Jacob has paid £100,000 of his mortgage and has £100,000 outstanding. His home has increased in value by £50,000 and so the equity is valued at £150,000. Jacob has the option to remortgage for £250,000 to buy a buy to let property, still owing £100,000 in his mortgage.
Remortgaging is a long process, but for millions of people, the extra effort is worth it. To get the ball rolling, get in touch with an independent mortgage advisor. They offer a free no-obligation quote, so what are you waiting for?
My biggest concern was finding a mortgage with no strings attached. My options were clearly explained to me and I felt confident about the decision. Alice Silverman, Stoke-on-Trent
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THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
IF YOU ARE THINKING OF CONSOLIDATION EXISTING BORROWING YOU SHOULD BE AWARE THAT YOU MAY BE EXTENDING THE TERMS OF THE DEBT AND INCREASING THE TOTAL AMOUNT YOU REPAY.
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