Is Remortgaging A Wise Thing To Do?
Remortgaging is when you exit your old mortgage and take out a new mortgage on the same property you already own. The idea being that you can switch to a better deal.
A mortgage is the biggest expense anyone will pay in their lifetime. If you can reduce your monthly payments then should that be something to consider? Most people shop around for the best price when making smaller purchases such as a TV, or PC but fail to do the same when it comes to mortgages.
Below we will look at the reason why you ought to remortgage.
The main reason to remortgage is to reduce your monthly repayments and to save money each month. Sometimes this can be a significant chunk of money.
When you took out your original mortgage, you were probably on a great deal. But like most this is likely to only last two years then you will switch to the standard rate. The standard rate is probably going to be higher than your old deal and any new deals on the market. You should start looking at what deals you can get around 12 weeks before your current rate is due to end
If you try to leave your current deal, you may have to pay an early exit fee. This can sometimes be a significant chunk of money for example 2-4% of your outstanding debt. While this figure can be high, remortgage can still give you substantial savings due to the lower interest rate. You will need to work out the saving of the lower interest and exit fee.
Now the UK is getting back on track property prices are increasingly rapidly, so your home is probably worth more than since you first purchased it. Due to this increase, you may find your LTV is lower and can get lower rates. Again you will need work out the figures to see if this is the case.
If the BOE (Bank of England) base rate is going to increase, then this may mean your mortgage repayments will rise depending on the type of mortgage you took out.
Maybe you suddenly came into some money, or you got an increased pay rise. If you want to pay a bit extra each month but your lender may not let you or there is a small fee then you may want to remortgage and compare how much you might save with a new mortgage.
Make sure you research to find if there are any early repayment charges and exit fees.
Your lender should be more than happy to make the switch for you without any charges but if you want to change from repayment to interest only then this can be a headache. Your lender will probably make this difficult.
Maybe your lender is stopping you from borrowing more money, or the terms are not very good. By Remortgaging with another lender, you might be able to get more money at a cheaper rate. Remember when calculating if it’s a substantial saving you must take all fee’s into account to see if its a good deal compared to other forms of borrowing.
The new lender will probably ask you why you need the extra money. If it’s for a new car or something of that nature, then lenders are more open to doing this rather than lending for business purposes.
The most common reason people want the extra money is for home improvements such as an extension or new kitchen. Remember that your lender may want to see proof as to what the money is for, so if it’s for home improvements you may need builders quotes for example.
Below are the reasons why you may not want to remortgage
Often you will be better off remaining on the higher interest rate you’re currently paying if your loan is of a smaller value such as £60,000. Some lenders won’t take on a new mortgage is it’s below £30,000. You can have a look, but you will need to look at interest rates for a small fee or better still no fee at all. The lower your debt, the more in fees you are likely to pay
You may find it will cost too much to exit from your current deal is the early exit fee is very high. It’s important to do your research to see if this will be the case.
Ask your current lender if they have any deals available and if they can switch you. You probably won’t get the best deal new customer is offered but may work out better than your current deal, and if it doesn’t tie you any longer, it’s worth looking into this.
If your financial situation has changed for example if your partner has stopped working, then you may be restricted on remortgage deals. Lenders will need to assess your financial situation, and you may not qualify due to the reduced income.
In the unlikely event, your house value has dropped you will owe more than what you initially took out meaning your LVT is higher. Unfortunately, this is what’s called evaporating equity. Even tho you have been repaying the debt; your home value is less the what your debt it.
All you can do in this situation is hold tight. Keep making your repayments and wait for the price of your house to increase.
Lenders are now more picky about who they give mortgages too. They also now due to regulation need to ensure they check you can afford your mortgage, not just at the current rates but future rates too.
Lenders now require lots of information on your current financial situation. Any missed or late payments can be a cause for concern. Lenders will want to see a spotless credit history.