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.

Remortgaging: The Basics

There are many reasons why people look into the option of moving their mortgages to a new provider, or to renegotiate with their current lenders. Chief among these are:

• To reduce monthly repayments
• To release equity from a property
• To finance improvements
• To finance the purchase of another property

Even if you do not fall in any of these categories, it would still be a very good idea to regularly investigate whether you cannot perhaps ‘do better’ than your current mortgage arrangement, especially if you are currently on a simple ‘Standard Variable Rate’ mortgage.

Many people are reluctant to even consider the option of remortgaging since they imagine it to be a very drawn out, complex and expensive process. The fact is however that it need not take more than a few weeks. As far as cost is concerned, lenders will often waive some of the arrangement costs or valuation fees. It could still be worth your while to continue even if they don’t, as the savings that you make could quite possibly outweigh any fees or charges that you will have to pay.

If you decide that you would like to remortgage, you will have to take a few basic steps. They are:

Analyse your current mortgage: How much do you currently pay? Will you have to pay any early repayment charges if you move your mortgage? (In some cases these can be so hefty that it would be better to wait for the penalty period to expire before you attempt to remortgage)

Compile a wish-list: What are you looking for in a mortgage? Write down the specific features that you are looking for (e.g. Ideal rate, the ability to ‘offset’ your savings against the mortgage etc.). This exercise will leave you with a much clearer ‘road map’ when you start looking for deals.

Investigate as many options as possible: Compare different deals by phoning around and doing some research on the internet.

Speak to your current lender first: Once you have a good idea of ‘what’s out there’ it would be a good idea to speak to your current lender and to let them know about the deals that you can get in the market. It could be that they would be willing to match that in order to keep you as a client.

Consider all relevant fees, charges and costs before applying: It might be that some products offer a very attractive interest rate but that they will ‘sting’ you with very high costs and fees. Things to look out for (and put a value to) are:

• Mortgage Indemnity Guarantee Premiums: These are payments that protect the lender, but not you, in case of default.
• Compulsory Insurance
• Loan arrangement fees
• Booking Fees
• Valuation Fees

It is possible in some cases to get a fee-free mortgage at a higher interest rate. This could be worth your while if you are borrowing a smaller amount (e.g. under £100 000). In other cases you should tally up all the relevant costs, take into account the interest rates offered, and choose the best overall deal.

Apply: Once you have decided on your preferred lender the next step would be to apply for a new mortgage from them. Most lenders will be very helpful in guiding you through the process and your new mortgage should be in place in a matter of weeks if approved.

Summary:

• People remortgage for a variety of different reasons
• The first step to remortgaging is to analyse your current position
• This should be followed by the drawing up of a ‘wish list’ of what you are looking for in a mortgage
• The last steps are to analyse what is available in the market and then to apply to your preferred lender.