Top 7 tips on remortgaging
When you are remortgaging, you are effectively making a decision that may affect your personal finances for the next 25 years.
Accordingly, you may wish to follow these tips to help you find a remortgage deal that meets your individual needs.
1. Know your budget. It may be tempting to get a deadline of paying off your mortgage within ten years, but if your monthly household finances won’t allow it then you may need to consider remortgaging over a longer term.
2. Make a list of all the costs involved in remortgaging. It is not simply a matter of repaying interest and repaying the capital you borrow. You may need to pay valuation, legal and bank fees.
3. Look at the changeability of the deals available. If you are in the habit of remortgaging every few years to get a good deal, you may wish to check that no early redemption penalties are payable.
4. Consider the flexibility of the mortgages on offer. Can you make overpayments if you have a really good financial month? Can you take repayment holidays (as pre-agreed with your lender) when you need to? Some lenders may permit these to take changes to your circumstances into account.
5. Brush up your credit rating. It is important that your credit rating is accurate. Sometimes the rating agencies or people that you have borrowed money from can make mistakes, which may not work in your favour. Accordingly, you may wish to get hold of a copy of your credit report to make sure that there are no negative entries that have been put there by mistake.
6. Know your Loan To Value Ratio. Your LTV is often expressed as a percentage, and represents the relative amount of money that you need to borrow compared to the value of your house or flat. Typically the smaller the loan to value ratio is, the more loans may be available to you.
7. Get to know about interest rates. They may seem complicated, but resist the temptation to gloss over the details and take a moment to understand what deals are available. Fixed rates may offer certainty, but trackers may also be worth a look as you may be able to benefit from low rates when the Bank of England’s rates are low. “Caps” on trackers are available, which may mitigate the risk of rates rising beyond your affordability level.
Some common questions about loans
Researching loans may be a little daunting, especially if you are not used to taking out financial products. Accordingly, you may wish to look at the answers to the following questions to help you feel more informed about loans.
How much do you need to borrow?
The first thing you may wish to establish is how much you need to borrow. Are you borrowing the money for a particular purchase like a car or to spend the money on an educational course? If the loan has a particular purpose, you may find that lenders may offer dedicated products for this (eg car loans).
The amount that a bank or building society may lend you may depend on:
- your credit record. If you have lots of missed payments, CCJs and insolvency problems on your record, you may find it more difficult to get credit than people without such problems on their credit history. However, you may wish to check your credit history before you apply, because credit records can sometimes contain mistakes. (Contact Experian, CallCredit or Equifax – these are the three main credit referencing agencies in the UK and you’ll typically be able to get a copy of your file from one of these for a small fee);
- your income. Lenders may look at how much you have coming into your bank account when they decide whether to grant loans, and how much to lend you; and
- your commitments. In addition to looking at how much money you have coming in, lenders may also assess how much of that income is already committed to service existing debts and pay necessary bills.
How much will the loan cost you in interest?
This is a question of looking at the APR (annual percentage rate), which takes into account the total costs of the borrowing and expresses it as a percentage of the loan. So this takes in any fees that may be payable for the loan in addition to the interest rate itself (but not other fees, such as charges for things such as missed payments).
Getting an online quote
You can get no-obligation quick online loans quotes from many providers online which may give you a better idea of what is a sensible amount to borrow.
Note that these are only rough guides and if you make a loan application, you may find that the monthly repayment rate may differ.
Can you really afford the repayments?
Finally, do ensure that you will comfortably be able to afford the repayments. Even if a lender approves you for a loan, you may wish to take a long hard look at your monthly budget to decide whether getting loans is affordable for you.
A brief guide to loans
Have you already got a loan or are you thinking about getting one? If you are looking into your borrowing options, you may wish to take the following issues into account:
- whether the loan is secured or unsecured
- what the interest rate is;
- how long you have to pay it back; and
- what fees are involved.
Taking these issues in turn, what decisions do you have to make as a potential borrower?
Secured or unsecured?
If you are a homeowner, you may have the option of getting an advance that is secured on your property. This means that if you get into arrears, your lender may be able to sell your house to repay the debt. However, the lender may perceive the secured advance to be “safer” than unsecured borrowing, and may typically offer larger amounts and more attractive interest rates as a result.
What interest rate to pay?
When you see a headline rate for a loan, do bear in mind that this is the typical annual percentage rate (APR) that may be charged. If your circumstances are not that of a ‘typical’ customer, you may not get offered a loan at that rate of interest.
How long will the loan be outstanding?
On one hand, if you borrow a sum over a long period of time, you may find that the monthly payments are cheaper than a shorter term borrowing, because they are spread out over more years. However, this may also mean that you may pay more interest over all. Accordingly, you may wish to weigh up these considerations when choosing the term of your borrowing.
What fees are involved?
Some loans may involve an arrangement fee, a reservation fee or even an early redemption penalty. You may wish to make sure that the fee charging structure of any borrowing that you take is transparent, so that you understand what fee system you are signing up to.
Who offers loans?
Loans are available from a number of sources. Online applications are often available, potentially meaning that the whole process is quick, easy and eco-friendly!
Varieties of loans
If you’re looking for loans, you’ll find that there are a lot around to choose from.
Qualifications
However, before you even start you’ll need to think about the typical sorts of things you’ll need to have to qualify.
This will depend very much upon the amount you wish to borrow but typically:
• a loan may be hard to find if you are unemployed or have a poor credit history;
• ditto if you already have large borrowings in relation to your earnings (sometimes called your debt-to-income ratio);
• some providers may view certain categories of self-employment or part-time working as being cause for concern.
Types of loans
Broadly speaking, lending breaks down into two categories:
• secured – typically your borrowing is secured against an asset that the lender may seize (or get a court order to make you sell) in the event you don’t pay the loan back;
• unsecured – typically advanced purely based upon the lender’s perception that there is a small risk of you defaulting.
Typically, for larger borrowing, unsecured lending is a little harder to obtain than secured and it may sometimes cost you a little more in interest compared to a secured loan.
Costs
The costs of borrowing vary hugely depending upon the provider you use, the amount you’re trying to borrow, your personal circumstances and the purpose.
Shopping around for loans is, therefore, typically advisable.
Finding loans
Many of us use loans perfectly responsibly for things such as car or house purchases, holidays and so on.
In fact, assuming you have the income to service the loan appropriately, sometimes a loan can be a cost-effective way of using money.
Lending today comes in a multitude of forms. One important major distinction to begin with is:
- secured;
- unsecured.
An unsecured loan basically means that the lender has no direct security over one of your assets in the event you default. By contrast, in the case of a secured loan they do – and that asset is often your home.
Typically, a secured loan may be a little cheaper than an unsecured loan but keep in mind that any asset you use to secure a loan may be at risk of seizure if you are unable to keep up payment of the loan.
As a general rule, the longer the period you take out your loan for, then the more it will cost you over the full term.
Although it’s risky to generalise, typically lenders will tend to look more favourably on applications for loans for an asset acquisition or enhancement (e.g. houses, cars or property extensions) than they will on applications for expense items such as holidays or clothes etc.
Looking for a loan
If you need a loan, for whatever purpose, then you may be not just looking for money but also a product that’s suitable for your situation.
Your situation is unique to you and a product that’s right for one person won’t necessarily be suitable for another.
Your situation
When thinking about loan products, you might start by asking yourself a few questions:
- do you want to offer security – in other words, will you be willing to guarantee your borrowing by linking it to an asset such as your house;
- how long to do you want to repay the money over – longer repayment periods typically will reduce your monthly repayment amount but they’ll increase overall the amount you have to pay back;
- how much do you need to borrow – remembering that this will need to make sense against your earnings and ability to repay it;
- why do you want the advance – advances for asset purchases such as houses and cars may be more easily obtained than those for consumables such as clothes or holidays.
Being clear about these things is important because you’ll typically find that there are types of lending in the market that are specifically aimed at these factors (and many more).
The cost of borrowing
How much you have to pay for borrowing money will vary depending upon a number of factors – including the answers to the above questions.
Today, the advances offered by major providers will typically cite the typical APR (Annual Percentage Rate) to show the cost of your borrowing.
Typically, the lower the APR then the lower will be the cost of your loan, all other things being equal.
It’s maybe worth noting though that some providers may also make additional servicing or administration charges. By law, this must be highlighted but if charged, then they will increase the overall cost of your borrowing. You may not be offered the ‘typical’ rate if your financial profile doesn’t fit that of a ‘typical’ customer.
Borrowing and debt
Debt may be essential if we’re to purchase major items such as houses, conservatories, cars and furniture.
Used responsibly, borrowing can be perfectly manageable and millions of people manage to use capital in this way without getting into debt problems.
Your ability to comfortably repay your borrowings on a monthly basis is called servicing your debts. Most responsible lenders will happily use various forms of income and expenditure modelling to help you understand approximately how much you could borrow and safely repay. Some offer online loan tools to help you get a rough idea of affordability; what your repayments may be etc.
It’s typically a good idea to incline towards conservatism when doing these sums.
Given that bad luck can hit anyone, it may be worth considering one of the various forms of loan or income protection insurance policies. Once again, the major financial companies will typically be only too pleased to offer further advice on this subject.
Classic personal loans
When speaking of personal loans, not all banks and building societies use the phrase to mean exactly the same thing.
It may be used to indicate:
- a loan advanced to a private individual as opposed to a company;
- essentially any form of unsecured loan;
- a loan to an individual but that is typically for a smaller amount of money;
- an advance used to buy something that’s not a major asset such as a house.
So, if you’re looking at the personal loans available from household names on the high street or online loan brokers, you may see some slight differences in terms of descriptions and points of emphasis.
What can you use these loans for?
There are a number of approaches here and not all loan providers will adopt the same policies.
In theory, some loans of this type are advanced based on the buyer’s integrity and financial standing alone. In those cases, theoretically you can really use the loan for whatever purpose you choose.
In practice, however, loan providers of personal loans will typically ask the purpose of the loan as this may affect their perceptions of the risks involved.
To use a humorous (hopefully) example, asking for a loan so you can go to the casino may not generate a favourable response in terms of risk assessment. By contrast, a loan used to extend your property may do as you’re adding value to an asset.
In the case of larger loans, even if unsecured, the lender may ask to see evidence of the planned use of the funds such as a pro-forma invoice for a motor vehicle etc.
Who can get these loans?
The criteria used to assess lending vary widely and this can only be a very general guide, however, typically these will include:
- being employed and earning a regular wage or salary;
- asking for a loan amount that you appear to be able to afford - taking into account your earnings versus other regular financial outgoings (sometimes called your debt to income ratio);
- your credit history records;
- the purpose of the loan;
- being a homeowner or tenant of long-term standing at a fixed address.
Some lenders may look more favourably on applicants that already have a working relationship with them.
Arrears and troubles
Most responsible lenders accept and understand that however carefully you and they have worked things out in advance, things can go wrong that affect your ability to repay the loan.
If you contact them in advance, they may be able to make arrangements to re-schedule the repayments or allow short payment holidays etc.
Simply stopping repayment of a loan without prior discussion and agreement to alternative approaches may result in significant additional costs for you and the possibility of recovery actions being taken.
Loans
Personal loans can be enormously useful when used sensibly. Loan providers will typically be only too happy to advise further on managing your loans successfully.
Car loans v. forecourt finance
If you are on the market for a new car it is important to plan and to prepare for it. The better prepared that you are, the higher the chances that you will have a satisfying car buying experience. As a shopper, you not only have to research, shop around and narrow down your choices on the car that you want, if you plan to finance or use a loan to buy your new car you will also need to shop around for car loans. By shopping around for a loan, there is a very strong likelihood that if you will find a suitable car loan for you. A good car loan is one with minimal fees and an excellent interest rate. This alone could save you hundreds, if not over a thousand pounds in costs.
When you are looking for a way to finance your new car you usually have at least two options: a car loan from a bank or forecourt financing. Getting car loans from a bank requires just a little bit of planning, getting a forecourt loan is something that can be done spontaneously and on the spur of the moment. In fact you can often be preliminary approved for forecourt finance while you are standing at the dealership buying the car. It is important to know the different between the two as well as to know which of these two options is right for your situation.
Financing a new car:
- Decide on the car you want to buy
- Decide to apply for a bank loan or forecourt finance
- Shop for your car
- Pay for your car through your loan or forecourt finance
As with any kind of purchase at all, it makes sense to learn what you are signing up for, to weigh your loan options and then to choose the credit line that will offer you the best deal for your individual needs. When a person chooses a car loan as the funding for a new car, they usually have to get pre-approval for that loan from a bank prior to the day the actually shop for the car. Some people choose to get their loan from the bank where they do their everyday banking or they shop around and will sign up with the bank that has the best deal. Ultimately, the better your credit record, the more choices you will have to shop around for car loans.
Forecourt finance is a line of credit that is often offered to you by the dealership itself when you are shopping for a car. Forecourt financing comes in two distinct options: Hire Purchase (HP) and a Personal Contract Purchase (PCP). Qualifying for forecourt financing is often much easier than qualifying for a car loan because their requirements are not as strict when it comes to your credit record. This means that the interest on forecourt financing is usually much higher than that of car loans.
Secured loans v unsecured loans
There are times in everyone’s lives when things would be made much easier if they could get their hands on a large or significant amount of money. Borrowing money could be a solution to a situation like this when it arises. The main two ways of borrowing money are through secured loans or unsecured loans. Borrowing money from a lender is mostly considered to be a normal and established way of buying things that you would not otherwise have the money for.
If you find yourself in a situation where you want or need money to borrow, you will have to look around at the various loan options available to you. It is a good idea to try to remember that different lenders will require you to meet differing criteria. So if you are turned down by one bank, that doesn’t mean that you will get declined by another bank. However, repeated applications for loans can flag up a warning sign to lenders who will look at your credit file when accessing your suitability for a loan, so do bear this in mind.
If you need a relatively small amount of money, you could try to get an unsecured loan. For larger sums of money, you will probably be required to apply for a secured loan.
Applying for secured loans
- Establish how much money you need to borrow
- Do you have a good credit record?
- Will you use your own bank or another?
- Apply for the loan
An unsecured loan is a loan that is given to you without any security. This means that the lender has a limited number of ways of getting their money back if you failed to pay back the loan. This is as opposed to a secured loan that will be given to you against a valuable item that you own, such as your home.
When it comes to getting an unsecured loan from a bank or a lending institution of some kind, the only way for this to happen is if you have a good credit record. If you have bad credit and have showed signs of not being reliable in paying bills in the past, you may find that your only options for money are secured loans.
Secured loans are loans that are taken out against a major asset, such as your home. If you fail to pay back a secured loan, then included in the agreement is the condition that the lender/creditor has the legal right to take possession of your home for the use of recovering the money that they have lent you. A secured loan is usually considered to be more flexible, letting you borrow higher amounts of money than an unsecured loan, due to the fact that the lender has some security in getting his money back if you defaulted on repayments. In addition to this, most people can qualify for borrowing much higher amounts of money with a secured loan than with an unsecured loan.
An explanation of IVAs / debt management
IVA stands for Individual Voluntary Arrangement. An IVA is a legal process in the United Kingdom (for UK residents) whereby you can arrange to pay debtors back a reduced amount of the money that you owe them, due to personal debts that are perhaps overwhelming. IVAs / debt management is usually available on debts of £15,000 and more. If you have a debt below this amount, you will often have to look for an alternative to IVA.
IVAs / debt management is an excellent option in many cases however it can not be used for debts related to a mortgage, a secured loan, Hire Purchase (HP) or utility bills so there are specific restrictions. It is important to ask about and inform yourself of the specifics of an IVA before applying for one.
The important things to note about an IVA is that once you enter into this type of agreement, you will typically no longer be contacted or hear from your original creditor. If you are behind on your payments and have been receiving daily phone calls, this alone can give you a huge amount of relief. Another key characteristic of an IVA is that once you enter into the agreement, interest and charges will no longer be charged to the account. This removes another level of pressure because it means your balance is set and will no longer rise on its own due to interest and fees.
An IVA agreement usually requires you to faithfully and reliably make the agreed payments for up to 5 years (60 months). If you stick with this agreement, the balance of your debt will be written off by your creditor. This agreement will be honored by your creditor if you honor the payment arrangement made between you and them in the IVAs / debt management arrangement.
Depending on your circumstances, you may be offered an alternative debt management solution if you do not qualify for IVAs / debt management. The information that you will need to find out whether you qualify to apply for IVA or other forms of debt management can be found on certain government web sites, if you search carefully. They can also be found on the web sites of debt management companies that specialize in helping people in debt. These companies will review your debts for you. If you agree to work with them they can at times negotiate solutions for your debts. One solution could be debt management where a debt management company will contact all of your creditors and negotiate lower payments for you if possible. At times, they can also negotiate a freeze of interest and other charges so that paying off your debts is easier.