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.

• Make sure that the new mortgage you choose is available to homeowners who are remortgaging as not all of them are.

• Most people should choose a Repayment Mortgage over an Interest-Only one as there’s no risk of shortfall then.

• Check if the lender charges interest daily, this is better as the amount you owe becomes less every time you make a payment, meaning you pay less interest than with a lender who calculates interest annually.  Annually means that 12 months worth of payments have to be made before the amount you owe is reduced.

• Using a Mortgage Broker can save you a lot of hassle and open up deals that wouldn’t be available to you as an individual.  Opt for a ‘whole of market’ broker, they may be free or charge you for the service so check first.  Do still check some other deals yourself though, as some lenders don’t offer their deals through brokers.

• Your lender may offer to add buildings insurance and Mortgage Payment Protection Insurance to your monthly payments.  If you shop around and buy them separately you are likely to save money even though some lenders charge a fee if you decline their insurance.

• If money is particularly tight, a fixed rate deal means that during the fixed rate period you won’t have any nasty surprise increases in your monthly payment if interest rates should rise.  Don’t forget though that when the fixed rate period is over, your payments could increase significantly if interest rates have risen.

Disclaimer-

This guide does not constitute financial advice.  Anyone seeking financial advice should seek appropriate professional advice.

Mortgage Brokers

It can save a lot of time and hassle if you use a mortgage broker to find the best deal for you.  They may also be able to obtain mortgage deals that are not available to individual customers.  The type to choose is a ‘whole of market’ broker, as others may offer a limited selection of products and not include the most competitive deals.  Some may charge a fee, however others are free and make their money from commission.

Interest-Only Vs. Repayment

Despite the large number of different mortgages, they can be divided into two types-  Interest-Only and Repayment.  In the case of interest-only products, it’s possible to find yourself with a shortfall if the investment aspect of your mortgage fails to perform well.  This means that you would be responsible for finding the extra money needed to make up the difference between the value of the investment and the amount you owe.  With repayment types you will not risk having a shortfall as some of the money you pay each month goes towards the interest, and some towards repaying what you borrowed.

Types of Mortgage

Some of the different types available are:

Standard Variable Rate- Interest rate varies as it’s linked to the Bank of England’s interest rate.  Drops in Bank of England interest rate may not all be passed on to you however.

Tracker- Follows changes in Bank of England interest rate exactly, but some types may have a minimum interest rate below which they won’t drop (known as a ‘collar’).

Fixed- The interest rate is fixed for a set period, from a few years up to 25 years.  If rates have increased during your fixed period, your payments might increase greatly when the fixed period is over unless the fixed rate period covers the whole length of the mortgage.  Also, if the Bank of England interest rate falls your payments will not.

There are many other types of deals and it shouldn’t be a problem finding one to suit your circumstances. For more information see Loan Mortgage Financing.

Disclaimer-

This guide does not constitute financial advice.  Anyone seeking financial advice should seek appropriate professional advice.

Financial Penalties

Your present mortgage could have some severe financial penalties if you decided to change to something more competitive and under these circumstances you may well be better off financially if you stay put.

Already Got The Best Deal

It could be that after shopping around for a better deal and doing some calculations involving fees, penalties etc. , you find that you wouldn’t be any better off if you switched to another lender.  Changing in these circumstances would obviously be pointless, however you should regularly look at what other deals are available as you may find at some point that you no longer have the best mortgage for you.

Near The End Of Your Mortgage

If you have been paying off a mortgage for some time, it could be that the amount you would need to borrow from the new lender is too small for them to consider you.  You may also find that the cost of switching when near the end of a mortgage makes the change uneconomical.

Changed Personal Circumstances

Some people may find that due to changes in their personal circumstances, they would no longer be able to get a mortgage elsewhere or have a reduced choice.  For example, if they have become self-employed or one partner is no longer in employment.

Interest Rate Changes

As mortgage fees and interest rates are constantly changing, you could find that at the present time it doesn’t make financial sense for you to switch lender.  It’s always worth keeping an eye on the situation though, as fees and rates could change to the point where you would be better off switching.

Disclaimer-

This guide does not constitute financial advice.  Anyone seeking financial advice should seek appropriate professional advice.

Standard Variable Rate Mortgages

If you are currently have a Standard Variable Rate Mortgage then you are likely to be able to find yourself a more competitive rate of interest elsewhere.  Don’t forget though to give your current lender an opportunity to give you a better rate of interest than they are now giving you, as the rate you are currently on may well be negotiable.  As the saying goes, it’s easier to keep a customer than to attract a new one so don’t be afraid to ask.

Changed Personal Circumstances

If your personal circumstances have changed since you set up your current mortgage then it could be that the product you now have is no longer suitable for your new circumstances and it would therefore be a good idea to shop around for something more suited to your present situation.  For example you may find yourself on a higher salary and want to make extra payments to pay off your mortgage earlier, but are prevented from doing so by your current lender.  Alternatively you might now need a flexible mortgage where you can miss a payment now and again.  There are many different mortgages to suit a multitude of different situations.

Endowment Mortgage Shortfalls

The money you pay to your lender in the case of endowment mortgages is used partly to pay the interest on the loan and the rest is invested hopefully to grow enough to pay off the original amount you borrowed.  If the money that was invested hasn’t grown sufficiently to cover your debt then there is a shortfall which you yourself are responsible for paying.  If you find yourself in this situation, you could be better switching partially or completely to a repayment mortgage, and professional advice would be strongly recommended.

Disclaimer-

This guide does not constitute financial advice.  Anyone seeking financial advice should seek appropriate professional advice.