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Remortgaging Frequently Asked Questions
Listen below as Michael Webb talks all about remortgaging.
In just over 20 minutes, you’ll know a lot more about getting your remortgage sorted.
What is remortgaging and how does it all work?
Typically, the term remortgaging means selecting a new mortgage product. If it’s with your current lender that would be classed as a product transfer or a product switch.
Let’s say your fixed rate deal is coming to an end and you want to select a new product – a new fixed rate for example – for a new period of time. You could stay with your own lender as a product transfer. That’s become quite popular in recent years, especially with lenders wanting to retain good payers.
But the most typical use of the word remortgaging is where you move from lender A to lender B, taking a new product. That market’s very competitive. Lenders are looking to attract good business, so very often they are pricing very keenly to get your business..
When is it a good time to remortgage?
That will depend on your own individual circumstances, but a common time to take a look at remortgaging is when your current deal is coming to an end. We like to speak to people around seven months before the end of their fixed rate or their initial benefit period.
That gives us time to assess what’s happening, look at the marketplace and get that deal offered and legals through. Then, when your deal ends at, say, the end of September, on the first of October your new mortgage pays your old mortgage off and you go onto the new deal.
Sometimes people look to remortgage within their benefit period and there are various reasons to consider this. For example, if you’re half way through a five year fixed deal and find that the value of your home has gone up quite significantly, you may be able to secure a lower Loan to Value mortgage. That potentially means you can get a lower interest rate and save money, even if it means paying your early repayment charge.
A good broker would be actively monitoring this for their clients to make sure they’re always paying as little as possible.
Something that’s very relevant now (autumn 2022) is that people are worried about interest rates going up. They might still be in a fixed rate deal, but interest rate rises are escalating – they’re worried where those rates will be at the end of their current fixed deal. It might be beneficial to pay the early repayment charge and secure a new interest rate early.
Some quite significant maths are involved in that, along with attitudes to risk. It won’t suit everyone, so it’s something you need to take really good advice on. You could do yourself more financial harm than good.
Another reason why people might remortgage or potentially take a ‘further advance’ with their own lender is to raise money for home improvements. They might wish to add a conservatory, an extension or do some renovations in or outside the home. That’s possible, but it’s usually best to tie it in with the renegotiation of your fixed rate, unless it’s really urgent.
Generally we advise against paying your early repayment charge. It’s best to look at borrowing an additional amount with your existing lender, or potentially review the second charge market.
A final thing that people look at is rolling unsecured debts into a mortgage. This requires significant advice and assessment on whether it’s the right thing. It might seem an easy option, but do consider that if you’ve got a loan with three years to run, you can make that monthly payment cheaper but you will be extending the repayment time to maybe 20 or 25 years. Advice is very important for a debt consolidation remortgage. Sit down with a broker and run through all the details.
When is remortgaging not a good idea?
If you’re on a very good interest rate already, then you need to assess whether you want to let that interest rate go. That’s becoming more and more relevant with rates rising.
You will also need to consider whether you’ve had affordability changes. Most people when they buy a home, especially if they’re First Time Buyers, will potentially need to buy things for the home, or a car, causing unsecured borrowing to go up. They might start a family, which increases their costs too, in which case potentially one parent will work less, meaning that income goes down.
When expenditure goes up and income comes down, a mortgage is less affordable. Therefore remortgaging sometimes isn’t even possible, in which case you’re driven down a product transfer route. If you’re looking to borrow more, that can be difficult as well.
Another thing that makes it difficult to remortgage is if your property value has dropped. The worst case scenario is that you end up in negative equity, making it very difficult to move lenders.
I suspect product switches would be available for you if we enter that kind of Market, or if your equity is reduced. For example, you may have secured your deal on a 75% Loan to Value and now you’re up at 90%. In that case, it wouldn’t make sense to walk away from the rate that you’ve got.
The key overriding things to look at are:
Mortgage size: if it’s a very small mortgage, the gains made by remortgaging are smaller and you should look at the overall cost involved.
Early repayment charge: if that’s quite large, you’re just not going to save money by exiting your deal early.
Your goals: whether you want to borrow more money, decrease your monthly payments or roll in unsecured debts.
Fees: Most remortgages offer things like free valuations, cash back or free legals – but some don’t. There may well be a solicitor bill to pay or a cost to have your property valued. All the costs need factoring in when deciding whether it’s right to remortgage or not.
What remortgage options are available?
We will look at the products available in the market. You could remortgage onto a fixed rate or a tracker rate. Fixed rates typically are available for two, three, five, seven and ten years, with lenders frequently dropping in and out for each of those terms.
We’ll help you navigate the marketplace and help you decide on whether to move from Lender A to Lender B – and consider what’s on offer to retain you as a client.
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Why remortgage at the end of a fixed rate deal? What happens if I don’t remortgage after my deal expires?
When you take out a mortgage contract in the UK the most typical term is 25 to 30 years. You may fix that deal for the first five years, after which, if you don’t remortgage, twenty years of your contract is at a variable rate.
Fixing a mortgage is very common because people don’t like the insecurity that their mortgage payments could rise. We’ve just come out of a decade where nothing really changed, and are now entering a period of uncertainty and rising interest rates. More than ever, people want certainty that they won’t get a letter each month saying that their mortgage payment is changing.
Typically, if you don’t remortgage when you come off of a fixed rate you move onto a standard variable rate. This results in a ‘payment shock’ – a big increase in your mortgage payment. For the last ten years people haven’t really suffered this. If they were coming off a fixed rate onto another fixed rate their monthly payments have stayed broadly the same or got cheaper.
We’re now entering a period of time where people are coming off of historically low fixed rates onto significantly higher interest rates, even when fixed. Your payment may have been £800 a month, now you’re refixing and it could be £1,000, for example.
But if you don’t remortgage you revert to the lender’s standard variable rate. Some lenders just have their own internal rate which changes whenever they choose, based on their own internal economics. Others will link to the Bank of England base rate, at 5% above base rate, for example.
The key thing to note is that at the end of a fixed rate, your mortgage continues. It doesn’t end. You haven’t got to pay it back. You continue the contract, but you’re quite likely to suffer a significant payment shock.
How do I improve my chances of getting a good remortgage?
It’s all about early preparation. The first thing is to start looking at the marketplace a good seven months before your deal is going to end. That gives you time to get a mortgage application, get the mortgage offered and – in the current market, where rates are rising – to get a rate secured as early as possible,
You should also look at your overall financial health because this will be assessed by the lender when they review your mortgage application. Make sure that all your bills are paid, your bank accounts aren’t going overdrawn and any debts are being paid on time.
That way you’re keeping your credit file in good order, so you can access the best rates within the marketplace. Ideally you should not have anything on your bank statements that lenders would see as a risk. If you have regular payments on gambling websites, for example, lenders may see that as a risk to paying your mortgage.
Payday loans are also an issue – many lenders will decline an applicant who has taken a payday loan in the past 12 months.
What fees are associated with a remortgage?
There will be some mortgage related fees, which can typically be added to the loan. An application fee may need to be paid upfront. You may need to pay for legal fees to move the mortgage from one lender to the other, and you may need to pay to value the property.
A lot of mortgage products are fee-free, however, where there is no booking or product fee. The lender may cover the cost of the valuation and legals. If there’s additional legal work like adding a borrower or removing a borrower from the mortgage, that would incur further fees.
How can a mortgage broker help with a remortgage?
It’s crucial to speak to a mortgage broker and get the market assessed because it’s very volatile at the moment. You don’t want to apply to a lender who takes four or five weeks to review your mortgage application, only to decline it.
While they’ve been assessing you, mortgage rates may have escalated and you then have to reapply elsewhere at a higher interest rate. Working with a skilled broker will make sure that the application is right first time. We will secure the interest rate at the point of application. It can’t be withdrawn unless there’s a material change or fraud is detected, getting you a binding offer from the lender.
We are here to assess your situation, have a conversation with you about your end goals and then make a tailored recommendation. It’s much more specialised and less risky than going on a website, seeing an interest rate and giving it a go! We’ll get the application right first time and that, in the current market, will save you a lot of money.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.