Getting a home loan is hardly the easiest of processes you will ever go through. There are lots of steps to complete, paperwork to produce, and proof to be given that you can afford the loan you are applying for. When you consider all that, you may well wonder why you would ever apply for another one to replace the existing mortgage you applied for.
People don’t change from one loan to another every day. Far from it, in fact – most homeowners will stay with one product for at least a couple of years before they consider switching.
There are some important points to remember regarding remortgaging your property. Some people wrongly believe it means taking out another loan alongside the one you already have. Not so – remortgaging is not a second mortgage. It doesn’t typically mean you will move home either. No – the element that changes here is the loan itself. Let’s say you currently have a mortgage with Bank A. You then realise Bank B is offering a far lower interest rate that would save you thousands of pounds over the life of your mortgage. So, you switch your loan from A to B.
Of course, it’s not quite that fast or easy. But this illustrates why you might consider remortgaging at some point.
Is remortgage a good idea?
It can be, yes. All situations are different though. Do assess your own financial situation prior to making any decisions on what to do. It can also help to chat with an independent broker. They can advise you of whether switching could save you money or whether you’re better off sitting tight on your current deal.
Can I remortgage with my current lender?
Yes – in fact this is the easiest switch to make. However, it may not be the cheapest one. One common way people make the switch is if their existing fixed rate deal is about to end. Their lender may have other fixed rate products that will be cheaper than moving onto the standard variable rate. It is usually easier and faster to switch mortgages with the same lender than it is switching to a new lender.
With that said, do make sure you complete your homework. There could be a lender out there offering a deal far cheaper than the ones your current lender might be able to offer.
How does remortgage house valuation work?
Whenever someone decides to sell their property, the first step is to get a valuation. This tells them how much their property is worth. An up-to-date valuation is still required if you wish to find a new home loan to replace the existing one – even if you don’t intend to move.
This might sound odd, but it will give you an idea of the amount of equity in your home. Let us assume you bought your property for £200,000 with a £180,000 mortgage and a 10% deposit. Today, your property is worth £250,000 and your outstanding mortgage is £175,000. Even though the amount owed hasn’t dropped very much, the value of the property has increased. That means your loan-to-value amount (LTV) will be lower than you originally required to buy the property.
The lower the LTV percentage is, the better the deals you are likely to get. You will only find out your LTV percentage by getting your property valued. If you want to remortgage, chances are the lender you approach will arrange for their own valuer to perform this task. This may be an in-depth valuation achieved by visiting your property; however, it depends on the lender. Some will not visit at all and rely on an automated valuation, others may only inspect the property from outside. Also known as a ‘Drive by’ valuation.
Once you have an idea of the value of your property, you can consider how much your new loan will be for. This could be identical to whatever is left on your existing loan or you can consider increasing / decreasing the loan amount at the same time. However, since the property value is likely to have increased, the LTV will be lower than it was when you bought it. The longer you’ve gone since the original purchase, the lower the percentage is likely to be. It also depends on the area you are in and the state of the housing market.
The good news is that you are likely to get a far better rate for, say, a 60% LTV than you would for an 85% LTV deal. Keep this in mind – if you still have time left on your existing deal, it may cost you more than it is worth to break free from it. Sometimes, waiting is the best deal you can hope for.
Remortgage: When to apply?
Remortgaging can take between two and eight weeks on average, depending on the complexity of the process, the lender involved and their current processing times. The smoother and simpler the process is, the faster it will be completed. For example, if you change to a new product with your existing lender, you’re likely looking at a much faster completion than if you want to switch to another lender.
It is wise to apply a few weeks prior to the end of any existing fixed rate deal you might be on. This gives you time to complete the application process. Most fixed rate deals automatically switch to a standard variable rate once they come to an end. This is likely to be significantly higher than the rate you were on before. Therefore, the sooner you can choose another cost-effective product, the better.
One final note – make sure you don’t do anything that could be viewed as financially erratic just prior to remortgaging your property. This includes applying for other loans, being late paying bills, or spending a large sum of money on something. Being careful at this stage could help your cause when you are looking to save cash by seeking a new home advance. Your credit history and financial transactions will be assessed when considering your suitability for a new loan. Maximise your chances of acceptance by exercising some caution ahead of time.