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Remortgaging – What You Need To Know
David Sharpstone, Business Owner at Mortgage Advice Centre joins the Mortgage and Protection Podcast to discuss all you need to know about remortgaging.
What is remortgaging?
When you take a mortgage, most people take a mortgage product for between two years and five years. Normally it’s a fixed rate, but there are variations in different types of deals. When that deal comes to an end, it could easily go up and you can end up with a much higher payment because you would revert to the lender’s Standard Variable Rate.
The Standard Variable Rate is usually much higher than the deal that you’re currently on. About three or four months before your deal expires, the Mortgage Lender will write to you and some Mortgage Brokers will also contact you, to inform you that your deal is going to end. If there’s no extra borrowing involved, it’s just a case of securing another great rate.
Remortgaging could also be going from one lender to another, for example, Halifax to Santander, to find the best deal for your set of circumstances. So remortgaging could be switching to a different Mortgage Lender for a better mortgage deal or getting a better rate with the same Mortgage Lender. Although we don’t usually refer to that as remortgaging, it’s usually called a product switch or a product transfer.
There’s a lot less involved with a product transfer as lenders don’t normally need to have any kind of underwriting process in place. They might just want to confirm whether anything has changed. Whereas if you switch to another Mortgage Lender, that’s considered to be more of a traditional remortgage, whether that involves a straight swap or borrowing some extra money because you want to make home improvements or consolidate some debts.
When is it a good time to remortgage?
It’s a good idea to start the process of looking for a better deal around six months before your deal expires. If you’re switching from one mortgage deal to another, that’s quite easy to do because the actual mortgage application process may only take between two and four weeks and once that mortgage has been approved, they’ll normally honour it for six months.
If you’re switching Mortgage Lenders there is usually a little bit of legal work involved, but it’s not too onerous.
What happens if I don’t remortgage after my deal expires?
A huge number of homeowners in the UK are paying far too much on their mortgage because they are sitting on the lender’s base rate. This is not the Bank of England base rate; every bank has their own individual base rates, which vary somewhere between 3% up to 6%, depending on the lender.
When your deal expires, whether you’re on a Fixed-rate, Tracker-rate or Discount-rate, if you do not explore your options, you can actually end up with something called payment shock. Payment shock is when your payments suddenly shoot up when you’re not expecting it. The bank’s Variable-rate could potentially be at twice the interest rate of your previous deal.
A Mortgage Broker could find you a great deal and save you from this situation from occurring.
How do I prepare my finances to improve my chances of getting a remortgage?
It’s important to ensure that you have a strong credit history, especially if you want to get a better deal from another mortgage lender. Make sure you’re not missing any payments and your direct debits are always set up on time. The most important payment to make on time is the actual mortgage payment itself.
Banks can be forgiving if you have a late payment on a mobile phone or gas bill, but any mortgage arrears for any reason, and you might find it difficult to get a better deal from another lender, but you might find even your existing Mortgage Lender may not give you another deal.
What remortgage options are available?
There are two things to consider, which kind of mortgage deal you would prefer, for example a Fixed-rate, Tracker-rate or Discount-rate deal. But you may also want to consider whether you want to reduce the term and pay off your mortgage a bit quicker. You may also need to extend the term.
You might need to borrow more money or release some equity to go and buy another property or an investment property. You can remortgage up to around 85% of the value of the property for most purposes, unless it’s for business purposes. Money to set up a business or put into your own business is not usually facilitated by mortgages.
If you’re considering debt consolidation, there are usually very specific rules on what you can and can’t do and you may be restricted with the amount of debt that you can consolidate.
What’s the difference between remortgaging and transferring a product?
When you’re going from one Mortgage Lender to another and you’re just moving your mortgage across, there’s some underwriting to be done, to evidence your income, which usually takes two to three weeks.
A product transfer, means you’re staying with the same lender that you’re already with. You’re not increasing the borrowing, just securing another great rate.
What fees are associated with a remortgage?
When you’re looking for the best mortgage deal available for your circumstances, lenders can charge a £1000 fee that they can add onto the mortgage without adding fees. You’re then paying for it over a longer period, so there’s interest added on it.
The same lender might offer the same deal on a higher interest rate, but with no fee or lower fees. What Mortgage Brokers look at is the overall cost and whether it’s worth going for the lower rate or smaller monthly payments
If you’re moving to a different lender, they’re quite eager to get your business so they won’t charge you for a valuation, but sometimes there’s a little bit of legal work to do to change over the deed to the property. Legal costs could be anything up to £500. Many lenders offer this for free or they’ll give you a substantial cashback to cover the bulk of the legal costs.
The only thing that you usually have to pay if you switch Mortgage Lenders would be some small bank transfer fees of £30-£50.
How can a Mortgage Broker like Mortgage Advice Centre help with a remortgage?
A Mortgage Broker would do exactly the same job as if you’re buying a property. We will look at what your needs are and whether they will change in the next two years. So the whole advice process would start again to assess where you are in your life now and what’s affordable to you.
The big difference between going to your own bank and a broker is that you will never be sure that you’ve got the best deal on the market unless you look at every deal in the UK.
Mortgage brokers have most of the lenders in the UK available to them, which makes it a much easier process for you, because they can find a competitive deal on your behalf.
If you have any questions about remortgaging, simply navigate to the contact page the MAC website and get in touch with the team
Think carefully before securing other debts against your home.