How Do Remortgages Work? Searching for the Ideal Remortgage Deal

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Approximately one in every three loans taken out on properties today are remortgages. Once you have a deal, there will likely come a point when remortgaging your property is going to be a strong possibility. Here, we look at the ins and outs of doing this – what it means to do it, how it works, and whether it is right for you. Remortgaging is the process of swapping one mortgage for another. People don’t usually move home when remortgaging; instead, there are other reasons, typically financial ones, for switching from one loan to another or borrowing additional funds to improve your home. This can be done by choosing a better mortgage product with the same lender who approved the original one. Alternatively, you might find a better one elsewhere and decide to make the switch to a new lender. Either route is fine – it depends on the deal you find and what will work best for you. If nearing the end of a fixed-rate or tracker rate deal, or you have the reached the end of a deal, it might be prudent to start looking for a new one. Take action by comparing deals from your existing lender and from other ones too. This will ensure you do not miss any better products in the market. In many respects, remortgaging is much the same process as getting your original loan. However, you are now looking for something better than you already have or something better than what your current mortgage deal is going to change to (for example your existing interest rate is finishing and the lender may be switching you to their standard variable rate which in most cases will be higher). Be sure to consider fees, savings on interest payments, and all the associated costs of switching from your existing mortgage to a new one – If you are using a broker than they will do this for you as part of the service to ensure they are offering you the best advice. There are lots of reasons why you might consider swapping to another mortgage product instead of moving on to the standard variable rate with your current lender. We look at the most common ones below. A fixed rate means you know exactly how much you will pay in interest each month. When that rate ends, you’ll likely find you are swapped to the lenders standard variable rate. This will likely be higher and could increase further if the Bank of England decide to increase the base rate. Getting a new advance to replace it will save you money in most instances. In this scenario the lender has offered you a discounted rate period, an example of this could be a discounted rate for two years. When the two-year deal has finished the rate may increase to a higher rate of the lenders variable rate and in this scenario it would make sense to see what other lenders could offer you with a view of switching over to a lower interest rate. An interest-only mortgage means you will only be paying off the interest – the capital you originally borrow will remain the same throughout the term. That means you’ll need another way to pay that off at the end of the term. If you’re on this type of home loan, switching to a repayment one will allow you to reduce the capital as well as paying the interest meaning that your mortgage will be paid off at the end of the mortgage term assuming you make all the payments. Your current rate may have been the best one around when you first accepted it, but that may not be the case now. If not, swapping to another deal could save you money each month. If you are considering this approach you should check to make sure that you don’t have an early redemption penalty with your current lender as this would need to be factored into the calculations as to whether switching lenders is financially worthwhile. The loan-to-value percentage is very important in determining the loan you can get. The lower the percentage, the better the deal, as a rule of thumb. Originally, you may have sought out a 95% LTV deal with a 5% deposit. If your home has gone up in value, you may now only require a 75% LTV deal, using the equity in your property to secure a much more affordable rate. You would like to take the opportunity of your current product period ending to increase your loan amount, so you can finish those home improvements. You may do this by speaking to your current lender or decide to review the market based on the new loan amount you require. This will ensure you apply for the best product as you have looked at all your options. When you applied for your original mortgage you had some credit blemishes which limited the lenders that you could approach. As time has passed your credit file has now improved so instead of staying with your current lender you may want to review the options available from the lenders that could not consider your application previously. This will ensure that your new product reflects your current and not previous financial circumstances. It depends on the individual scenario. For example, if you find a new deal with the same lender, it will likely be faster to complete a new home loan agreement than it would be if you switched lenders. This will be because the new lender may request new documentations whereas your current lender may already have this information recorded. Rejected applications will also lengthen the time it takes. If everything goes smoothly and you get a great deal from your existing lender, you could move from your existing loan to the new one in around four to eight weeks. Many applications that go smoothly from start to finish will complete in under a month. The completion and conveyancing part typically take the longest, assuming all other stages complete successfully and there are no delays in getting documentation together or having an application rejected. Many people start thinking about swapping to a new mortgage when they realise there are much cheaper rates to be had than the one they are currently on. However, you should always check your circumstances prior to considering a new advance. For example, some loans will include charges that are triggered if the holders want to repay them early. While you may think you are saving money by switching to a cheaper product, the exit charges could wipe out any potential savings you might make. This would render the switch pointless. Always read the small print, so you know whether your current agreement does include charges – and if so, how much you would pay to be freed from it. Many mortgage applications take between 4 – 8 weeks to complete so start looking at your options available to you 8 – 12 weeks in advance of your current mortgage deal coming to an end. As you can probably tell, not everyone will be able to choose another loan. However, there may be a chance you could make overpayments. If you can, there are several advantages to benefit from: Basically, if the interest rate on your mortgage is higher than the interest rate on your savings, overpayments are worth considering. Beware, though – you should always check the terms of your deal before overpaying. Some lenders have penalties for those who try to do this. There might be a limit on the amount you can overpay. For example, some lenders won’t permit you to pay more than 10% annually of the remaining balance in overpayments. Some lenders may not even allow this. Check your terms and conditions and go from there. You’re more likely to encounter fees if you are on an introductory deal of some kind. Those who may benefit most from overpaying are people on variable rates who have already been paying their home loans for some years. Remortgaging can save you more in some instances, but if you cannot do that for some reason, overpaying means you could clear your loan early. Clearing your mortgage early is a good thing, but make sure you always clear other debts with higher interest charges first. It’ll save you more in the long run. If you are using a reputable mortgage adviser they will take all of this into consideration and will prepare quotes for you to ensure that remortgaging for a higher amount makes financial sense for you.