What Does Remortgage Mean?
In the simplest possible terms, when you remortgage you will move your mortgage from one lender to another one with the aim of getting a better deal. Remortgaging is big business, with around one-third of all home loans in the current market being for remortgages.
Why Should I Remortgage?
Anything that can reduce your outgoings has to be a good thing and by remortgaging your property at a better rate you could save yourself a fortune. For most of us, the money we pay to our mortgage lenders is our biggest monthly outgoing so, surely, it makes sense to take all possible steps to reduce it. You probably shop around for other household purchases like electrical goods and three-piece suites so why should your mortgage be any different?
There are a couple of other reasons to think about remortgaging too: moving up the property ladder could be just the opportunity to change lenders; your financial status might have undergone dramatic changes – an inheritance or large salary increase, for example; you are a victim of an endowment policy mortgage that isn’t going to make enough to pay your mortgage in full; you are overburdened with debts and would like to consolidate them all in your mortgage loan. It can be emphasized strongly enough, however, that that last option should only be used as a final resort – there are other, less risky, methods of debt consolidation.
Why Shouldn’t I Remortgage?
If shopping around proves that you already have the mortgage deal made in heaven – stay put! The converse is also true – if you have signed a mortgage contract that makes moving legally complex or expensive – or both – you’re also probably best advised to stay put. And finally, in the current market, if you need to borrow more than 75% of the property valuation of your home you are unlikely to find a lender.
What Difference has the Credit Crunch Made to the Mortgage Market?
The current low interest rates mean that if you’re on a Standard Variable Rate (SVR) mortgage you are probably better staying with your current lender, however, it is always wise to shop around.
Having been bitten in the behind by their shockingly free and easy ways with money, UK mortgage lending is now much more selective. Before any lender accepts you as a customer they will want to reassure themselves as to your credit-worthiness, so unless you have a spotless payment history, your chances of remortgaging your property aren’t as good as they would have been a couple of years ago.
You should be aware too that your current lender may well charge you an exit fee and your new lender may charge you a management fee too. Then there are the legal bills… Suffice it to say, whilst remortgaging may be the best move you ever make, it is a move that requires careful consideration first.
Making the Right Mortgage Choice
The right mortgage for you might not be the right mortgage for your neighbor – choosing the correct mortgage is all very dependent upon individual circumstances. The most basic of choices to be made is between an interest only mortgage and a repayment mortgage; probably the best advice is to choose for a repayment mortgage but this isn’t always the case. However, you will need to be a very astute risk-taker to make an interest only mortgage a good choice.
To be honest, there are far too many mortgage options available to discuss in one short article but there are myriad internet sites designed to help you make your choice. We strongly advise that you consult a licensed mortgage broker – one that covers the whole of the market and is not tied to a select group of lenders. And before agreeing anything, do find out what their fee is!
Making the Move
If you decide to do the work yourself – that is, without going through a broker – these are the basic steps to remortgaging your property:
- Obtain a redemption code from your lender
- Get quotes from the new lender
- Don’t forget to add both sets of fees to arrive at the total cost
- Work out how much you stand to save – then re-evaluate whether it’s worthwhile moving lenders or not
- Apply to the new lender
- Your house will be surveyed and valued just as with your initial mortgage. That plus the legal work should take about 6 weeks, but plan on it taking 8 weeks just in case
If you do decide to go through a broker, usually the most advisable route, you can expect to pay a fee of around 1.25% of the value of your property.