Remortgaging can save you hundreds of dollars. But there are a lot of factors you should be aware of in order to make sure you’re getting the right deal.
What are the reasons to remortgage after fixed term?
When you first took out your mortgage, you may have been offered the most attractive deal. But over time, the mortgage market changes and new offers are available. This means there might be an offer that is better for the moment that could save you hundreds of pounds.
You don’t have to switch lenders.
Be sure to verify whether there are any arrangement or product fees on the mortgage you’re looking at, and if you’re ending the mortgage agreement early, any early repayment fees from your current lender.
These charges can be added to the cost of refinancing and may make it more costly than remaining on the current deal.
When should I refinance?
You can remortgage anytime. If you’re still not close to the end of your discount or fixed rate, you may have to pay an early cost for the repayment.
A majority of people remortgage their mortgages at the final year of their fixed or discount rate period because this is when your mortgage will become a bargain.
Before you make a switch, be sure to look into the cost.
Some lenders may offer fee-free offers to entice you, but if they don’t then you’ll be charged legal, valuation and administration expenses to cover.
The annual Percentage Rate Cost (APRC) to help you compare deals.
It is a method of calculating interest rates. APRC is a method of formulating interest rates by incorporating mortgage-related costs into the calculation, providing you with the ability to evaluate the mortgage offers.
What might look like a saving deal may end up losing you money if you don’t do the math first.
Affording a lower loan-to value to receive lower rates
Every mortgage deal has a limit to the amount you can borrow in relation to the current value of the property.
This is represented as the percentage, and it is referred to as the ‘loan to value’.
If you decide to remortgage the less loan-to-value you’ll need, the better deals are available to you. This will get you cheaper mortgage deals.
How do you calculate your loan-to-value
Divide your mortgage balance by the current value of your home.
Multiply the sum by 100.
Example
your outstanding mortgage is PS150,000
Your lender believes that your home is worth PS200,000.
150,000 divided by 200,000 = 0.75
0.75 x 100 = 75 – so your loan-to-value is 75%..
Remember to check related fees and charges.
Your lender’s valuation
When you apply for a mortgage the lender’s appraisal might only be a simple check of the exterior of the home from the street.
If you believe the value isn’t right – and you’re not getting the better rate due to it – you should solicit whether the lending institution will reconsider.
For evidence You could present evidence of the price at which you sold several similar homes within your locality and, where appropriate, include the costs of any home improvements you’ve carried out.
Remortgaging to obtain a lower rate of interest
If you apply for a new mortgage, you normally get an initial deal.
It’s most likely a low fixed or discounted rate or a lower tracker rate for the initial two years or so of the mortgage.
Introduction deals typically last up to five years.
When the deal comes to an end and you’re likely to be moved to your creditor’s normal variable rate which will usually be higher than the rates you’d get elsewhere.
In the event that your trial period ends, take a look at the marketplace to determine whether switching to a new mortgage plan will help you save money.
If you have only a small amount left to pay off your mortgage the savings of switching to a new one could be insufficient to justify the cost.
A flexible mortgage for a better deal
Remortgaging might also help you obtain a more flexible loan, for instance should you decide to overpay.
Perhaps you’d like to switch to an offset or current account mortgage. This mortgage lets you make use of your savings to decrease the amount you pay in interest either temporarily or indefinitely and also have the option to draw back your savings if you need them.
Consolidating debt with a mortgage
If you’re in the middle of a large amount of debt, you may be tempted to get extra cash and then use it to pay off other debts.
However, even though the interest rates on mortgages are normally less than personal loans – and much lower than credit card rates – you could end up paying more overall if the mortgage is for a long duration.
Instead of adding the loan onto your home mortgage try to prioritise and clear your loans on their own.
Find out about mortgage deals
Remember:
Comparison websites won’t all give you the same results, so be sure that you try more than one site before making a decision.
It’s also important to do some research about the type of product you want and the features you require prior to purchasing or changing suppliers.
Think carefully about remortgaging and agreeing to a new deal with large early repayment charges if you’re thinking of moving home in the near future.
A majority of mortgages today are ‘portable’, which means they are able to be transferred to a new home. However, moving will be considered to be a new mortgage application so you must meet the lender’s affordability criteria as well as other requirements to be approved for the mortgage.
If you don’t pass the checks, then your only option might be to seek out other lenders, which would result in paying the early repayment fee from the existing lender.
“Porting” a mortgage could typically mean that only the current balance is still on the fixed or discount deal so you need to choose another option for any additional borrowing for the move and this new deal is unlikely to fit into the timescale of the existing contract.
If you’re sure you’ re likely to move within the early payment period of any loan deal, you may want to consider options with no or low early repayment fees, giving you the ability to compare lenders when it’s time to move.
Ask for advice
Taking advice from a qualified expert offers you extra protection because if the mortgage turns out to be unsuitable and you want to complain, you can do so through the Financial Ombudsman Service (FOS).
If you choose to opt for the “execution-only” approach (where you make decisions on your own , with no guidance) you will face less instances in which you are able to be able to complain FOS.
