An Introduction To Remortgaging
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Many people are now looking for a refinance mortgage (remortgage), that is changing from their current mortgage to one with different terms. Some homeowners are looking to reduce the cost of their monthly repayments by extending the time over which the payments are made or switching to a lender with a lower interest rate. Others are looking to raise money for home improvements or other purposes. This short guide aims to give some basic jargon-free information about remortgaging.
Remortgaging
It’s becoming increasingly common for people to shop around to save money, and this also applies to their mortgages. As interest rates and your finances change, it’s worth looking at what else is on offer as you could potentially save a lot of money on your mortgage. It’s important to do your sums though- switching to a more competitive lender could mean an overall saving due to lower interest rates, but it’s important to check the small print of your current agreement as some lenders will charge an exit fee and also an early repayment fee if you want to take your business elsewhere. There can also be other fees to take into account, including paying the next lender an application fee, valuation fee plus any legal fees. If you employ their services, mortgage broker fees can also apply but some brokers will not charge you a fee as they earn commission.
There may also be other restrictions imposed by the lender if you are receiving special rates as part of a deal. These factors will have to be taken into account when working out if you are better off with another deal.
Shopping Around
If you are going to refinance and you’re shopping around for a new repayment mortgage deal, it’s important to consider how long you have left on your current one and look at how much a new deal would be over the same period. For example if you have 15 years left before your repayments are finished, then compare your current deal with a new 15-year one. If you don’t do this, you may think a new lender’s product is better than it really is. Remember to add any costs or penalties you might incur from your current lender to the costs of setting up with a new one. If the cost of leaving your current deal is £500, and the set-up costs of the new one are £500, total cost is £1000. If you calculate that by switching you will pay £100 less per month, then the cost of switching will be covered in 10 months, after which you’ll be £100 better off each month. It is also worth noting that not all mortgages are available to people who are remortgaging, so you need to check if the one you are interested in will be available to you.
If you decide to change to a new lender, it may be worthwile asking your current one if they can improve on what they currently give you. If you decide to accept what they offer, you would then avoid having to pay penalties to them and also avoid application, legal and valuation fees for a new mortgage.
If you can find yourself a cheaper deal than your current one, keeping your monthly repayments at the present amount would mean that you could finish your repayments earlier, and potentially save money by paying a lot less interest to the lender.
Disclaimer-
This guide does not constitute financial advice. Anyone seeking financial advice should seek appropriate professional advice.
