How To Remortgage For A Better Deal
Sticking with the same mortgage lender for the term of your mortgage no longer applies to the majority of borrowers. Traditionally you may have taken out a mortgage and stayed put for the entirety of the mortgage term however in recent times more and more borrowers have realised that this may not make financial sense. Not being proactive in shopping around could mean paying over the odds for the biggest financial commitment of most people’s lives.
Many borrowers are put off the idea of switching mortgages by looking back to the time when they first bought their home – the seemingly endless saga of loan application and approval, legal work, packing and moving.
Securing a remortgage is in comparison a simple process – it won’t generally involve the amount of paperwork, pressure and stress, no gazumping or gazundering either. In many cases it simply means transferring your loan to a new lender for a more favourable rate of interest.
Remortgaging will in most cases mean reducing your monthly repayments. It can also be a good opportunity to review your finances as you may decide to pay off some of the capital or you could even raise some extra capital – in this way, borrowing on competitive mortgage rates could be more favourable than seeking unsecured finance on generally higher rates of interest.
In many cases a remortgage is a way of securing a new fixed or discounted rate when the existing one comes to an end without having to go on the dreaded standard variable rate (SVR) It may also be that rising interest rates mean that your once competitive deal is no longer as attractive as it used to be – for example, if you have a tracker rate and the base rate is going up after a period of prolonged stability.
The cost of arranging a remortgage is of course far lower than that of buying a property – there is no stamp duty to pay, no estate agents to settle and minimal legal fees involved, however remortgaging does come at a price. You may be subject to a valuation fee as this will usually be a condition of the new mortgage, although the lender may cover this charge on your behalf.
The main two fees to consider are the lender arrangement fees and the early exit charge/early repayment charge. Many lenders will charge a percentage of the mortgage balance if you redeem the loan within a certain period of time. These rates will differ hugely and some specialist lenders will even go as high as 6%.
In recent times arrangement fees have risen dramatically and now average between £499 and 1.5% of the loan amount. You may add these costs to the new mortgage although this means that you will be paying interest on them for the full term of the loan.
The large increase in arrangement fees is due on the most part for the lenders need to make a profit. The competition in the marketplace has seen more competitive rates and attractive offers which has meant that the lenders profit margins are not as they once were.
Remortgaging Step By Step
1. Towards the end of your tie in period, approach your existing lender to find out what they can offer you. It is worth bearing in mind that this could mean less paperwork and ultimately lower costs.
2. Calculate and consider the fees and costs applied to move away from your existing lender (if applicable). If these are too high then you wish to stay where you are until the tie in period finishes.
3. Make sure that you shop around! Compare what your lender is offering to what is available elsewhere. Compare the APR as this will take into account associated fees and costs.
4. Select your favoured mortgage product. Start the ball rolling by making an application.
5. If you are using your own solicitors, contact them regarding the remortgage – some mortgage lenders will provide the services of their own solicitors.
6. Once the valuation is complete and all other relevant paperwork, subject to approval your lender will send you a formal mortgage offer. Sign the papers and the transaction will be near complete.