What are the benefits of remortgaging?
Recent changes in mortgage rates mean that, like millions of other borrowers, you could be paying more than you need on their mortgage and in fact, you would be better off remortgaging your property and switching to another deal. For the layperson, the mortgage market can be a maze of confusion, so how do you find your way through and work out what, if any, product transfer benefit you could be enjoying?
We take a look at what remortgaging is and what factors you need to consider when comparing mortgage products.
What is remortgaging?
Remortgaging is the official term of the process of switching onto a new mortgage deal – and you can often choose between a remortgage with a new lender, or sticking with your current mortgage provider. The most common time for homeowners to remortgage is when the introductory fixed, tracker or discounted rate on their initial mortgage comes to an end: in fact, to secure the best possible deal, you should start looking around 3-6 months before your offer rate ends.
Once your introductory mortgage rate ends, unless you remortgage to a better deal, you will automatically be moved onto a long term variable rate by your lender. This is usually your lender’s standard variable rate (SVR), which historically has tended to be higher than the rates available on new mortgage deals, and that’s why so many people get out their mortgage calculators and switch mortgages at this point.
What do you need to consider when remortgaging?
Fixed vs Variable Mortgages
You tend to pay a higher rate (initially) if you opt to fix your mortgage rate as opposed to choosing a tracker mortgage, but this is still a popular choice of mortgage for homeowners. It’s not surprising really, given the security and peace of mind you have of knowing exactly what your monthly repayments will be for the next few years. For lots of homebuyers, this premium is worth paying for the convenience of knowing exactly what their monthly repayments will be.
However, other homebuyers are happy to take a bit more of a risk and to go for the variable rate option. This often gives the advantage of lower monthly payments, certainly in the short term at least.
The most important thing when choosing your mortgage is to go with what you’re comfortable with: if you are worried that your mortgage payments may rise and become unaffordable, go for the security of a fixed-rate mortgage. You should keep the same process in mind when remortgaging too, and consider what repayment type/method will suit you best.
Most mortgage lenders offer really competitive deals for remortgaging, as they’re hoping to attract you to their company. It’s worth getting a good mortgage broker, who’s experienced at remortgaging, to help you with your search.
Your mortgage broker will be able to advise you fully on fees and costs, but it’s important to bear in mind at the outset that the mortgage with the lowest interest/repayment rate may not actually be the best deal.
You will also need to factor in the impact of any arrangement fees levied by the mortgage lender, because you may find that it is actually cheaper to pay a slightly higher rate of interest if the set-up costs are lower – usually, this depends on how much you need to borrow.
If you are borrowing a larger amount, for example, it can be well worth paying a larger arrangement fee in return for securing that lower interest rate. However, on smaller loans it could well be better financially for you to opt for a higher interest rate, in return for a lower set-up fee. Ask your mortgage adviser to help you work out how much you would pay monthly in total so that you can compare the costs.
Don’t forget that even for a remortgage, you will still have to pay legal and valuation costs to complete your remortgage. These are usually quite a lot lower than when you outright buy a house, but they are still costs that you will need to factor in. Your adviser can look for lenders who have deals such as free valuation, legal costs or even some cashback to help cover those costs.
Your new mortgage lender will, by law, require a valuation survey on the property and a properly certified solicitor will need to do the remortgage paperwork(we can recommend these for you). Some remortgage products include a free valuation and legal work as part of their offer, so it may work out cheaper in the long-run to opt for one of these products. Again, it’s best to get the help of your mortgage provider to work out what your repayments will be. If you are unsure about how to work out what the best deal is, a mortgage broker will be able to help.
The amount of equity you have in your home when you come to remortgage can make quite a difference to the competitiveness of the mortgage rates you may be offered. If you’re looking to remortgage for a specific purpose, say to raise funds for home improvements or to clear credit card debt, the amount of equity in your home will become an important factor there too.
Early repayment charge
Will there be closing costs or an early repayment penalty if you switch mortgage providers when you remortgage? Your mortgage broker will be able to help figure out what you’ll need to pay, if anything.
Then when considering your new deals, you also need to look at how long you want to be tied in to your new mortgage deal for. This is quite important to consider when you’re comparing mortgages, because most products will levy some sort of closing cost / early repayment charge during the introductory or deal period.
So, with a two-year fixed rate or tracker mortgage for example, you will probably be charged a penalty to get out of the deal during the first two years. Make sure you know what your new deal length and early repayment penalties are before signing.
With shorter term deals, being tied in like this isn’t usually too much of a problem. Where it becomes more of a potential problem is with longer term deals such as 5 or even 10-year fixed-term / tracker offers. A lot can change for anyone during that amount of time, and if your circumstances do alter enough for you to need to move home, it caould cost you thousands of pounds to get out of your mortgage early.
However, not all mortgages have a repayment penalty. Some of the most popular lifetime trackers for example, are completely penalty-free, making them a highly flexible and sought-after option.
When you come to remortgage, if you do end up choosing a product from a different lender, you may be charged an exit fee by your current lender to cover the administration costs of closing your existing mortgage account. These fees are usually not more than a few hundred pounds, but it’s worth checking with your mortgage adviser to be sure of the amount early in the process.
How should I choose my new mortgage product?
By weighing up all of the above points carefully, and by taking the advice of an accredited and registered mortgage broker, you’ll be easily and quickly able to determine whether moving to a new mortgage lender or taking a new deal with your current mortgage lender is right for you.
Remortgaging isn’t a long process, nor is it complicated, and you’ll find us ready and able to help you as your current deal comes to an end.