Lee and Neezam join us for a recap on remortgaging.
What is remortgaging?
Remortgaging is in effect when you change lender or bank. A prime example is where your fixed rate is coming to an end with a particular bank, say Barclays, and you decide to find a new mortgage deal with another, perhaps Halifax.
What can be a little confusing is that you can also switch for a new deal with the same bank. Instead of moving to Halifax you find a new deal with Barclays. That is what we call a product transfer.
What remortgage options are available?
It depends on your circumstances. What would normally happen is that you have a conversation with the bank directly or with a broker about your options. The products that will apply to you will depend on your income, your outgoings, your credit score, how much is left on your mortgage and what your property is worth.
The reason is that when you remortgage from one lender to another, the new lender needs to reassess your affordability, even if you’re not borrowing any more money. The new lender has a duty to make sure you can meet the affordability requirements and the lending criteria.
It can be a bit of a minefield working out what will be available to you – but that’s where a broker comes in. We ask you various questions to recommend lenders and products that are available to you, hopefully with a competitive deal.
When is it a good time to remortgage?
There are many reasons to remortgage, and we’ll name a couple of the most common ones:
- When your mortgage deal is coming to an end – probably the most common reason for finding a new mortgage deal.
- To raise some money for home improvements
- To consolidate some debts
It’s really important that you seek advice to understand if it’s a good time to remortgage, depending on your particular goals.
If you want to raise money for home improvements, for example, we’ll help you understand the positives and negatives of leaving your mortgage deal. It could be that you may need to stay with your current bank and borrow some additional funds from them.
There are many variables to consider, and particularly when your deal is coming to an end.
When is remortgaging not a good idea?
It may not always be a good time or a good solution for you to re-mortgage. Again an advisor will help you understand whether it’s right for you.
But to share a few examples, if you’re tied into a fixed rate deal and you’ve got quite a hefty early repayment charge, it may not be in your interest to remortgage.
Perhaps your property value has dropped significantly and now your mortgage balance is fairly close to what your property is worth – you might find it really difficult to find a new lender.
On the other hand, you might have a really small mortgage and even with a lower rate, the monthly payment might not be very different. In that case, you might pay fees to remortgage that you won’t get back in savings.
A big one is if your circumstances have changed – say you have a mortgage with a high street bank, but you might have missed some payments on your mortgage or another credit agreement. Remortgaging might mean you can only choose from the more expensive lenders.
We ask the necessary questions to establish whether you’re in a good position and then make a recommendation. It might be to stay where you are. If you need to borrow more you might be best off approaching the lender you’re already with, even if it’s at a higher rate.
Why remortgage at the end of a fixed rate deal? What happens if I don’t?
After your fixed rate ends you’ll fall onto the lender’s standard variable rate. You’ll be paying more than you need to.
Most of us review our car insurance every year to find the best deal. But this is on a lot bigger scale: we’re talking about your mortgage. It’s the biggest commitment you’ll ever have and the costliest. So it’s really important to review your options when your fixed rate is ending. It could be best to stay with your current lender, or to remortgage with a new lender.
The first reason to remortgage is not to pay more than you need to, and secondly it is more risky to be on a variable rate. That rate can go up and down, which means your monthly mortgage payment can change as well. Most people don’t like that. Generally we like the idea of monthly payments staying the same for a period of time.
Again it’s all about seeking that advice to understand what your options are.
How do I improve my chances of getting a good remortgage?
The big one is to make sure you always make your mortgage payments on time. Don’t miss any or pay late. Make sure you’ve got direct debits set up for the right day.
Start the conversation as early as possible – usually around six months before your deal comes to an end. Make sure that you have all the documents you need for your remortgage application. Gather them in good time and and get them across to the bank or the broker that is dealing with it for you.
Obviously not everything will be within your control. You might have had a reduction in income or an increase in your outgoings, which might make it a bit more difficult. But you can only focus on things that you can influence. Doing those things will help give yourself the best possible chance of good remortgage.
What fees are associated with a remortgage?
When we talk about remortgaging one of people’s first concerns is often fees. But generally speaking it’s probably not as scary as you think. With remortgaging there is some element of legal work involved because you’re moving from one bank to another. You’re effectively changing ‘the charge’ on the property.
But that legal work is very minimal and the good news is that most banks offer cash back to cover the majority of the legal costs, or they offer a ‘free legals’ service. So those costs are covered.
There’s also free valuation on most remortgages – not all, but 90% of the remortgage market. You do not pay for a valuation on your own home. Depending on the product you’re going for there could be some product fees with the bank. They can be added to the loan if needed.
They are typically charged for the benefit of having a fixed rate or that particular product itself. It’s a very competitive market, the remortgage market, so the majority of the fees are generally covered by the banks themselves.
What are your final thoughts on remortgaging?
Just remember that speaking to a broker means you’re getting access to the wider market. We’ll do all the work for you and make recommendations about whether now is a good time and present pros and cons to the options for you. That way you can make an informed decision.
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You may have to pay an early repayment charge to your existing lender if you remortgage.
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.