Remortgages

When your current mortgage deal comes to an end, you may want to shop around for a new mortgage. This is known as a remortgage.  If you choose not to look at securing a new mortgage, then you will automatically move on to your curent lenders Standard Variable Rate (SVR). If this SVR is attractive, you may not want to bother remortgaging. If you have not built up much equity in your property, you may not be able to remortgage, as many lenders now insist on a minimum of 20%. However, if you have a reasonable amount of equity in your property, you may well be able to remortgage onto a more attractive fixed term interest rate.

>>> Why you might want to remortgage
>>> Potential remortgaging problems
>>> How do you remortgage?
>>> Things to bear in mind when remortgaging

Why You Might Want to Remortgage

Get A Better Mortgage Rate

Probably the most common reason for remortgaging is to get a better mortgage rate (especially if your initial deal period is over and you are about to revert to an uncompetitive standard variable rate).  You may wish to remortgage to consolidate debt or to release equity.

You may also have to remortgage if you want to move house. In such a situation, even if your lender will allow you to transfer your mortgage in theory, it will probably require a valuation of the property to ensure it meets its standards.

Some people take out a new mortgage simply to save money on their monthly repayments. For example, you may take out a fixed rate mortgage only for interest rates to plummet, leaving you stranded on a higher rate. Remortgaging to a more competitive rate in these circumstances may make financial sense. Bear in mind that remortgaging is not a cost-free process though. Your current mortgage may carry penalties or charges if you try to leave it early, plus there will probably be costs associated with the new deal such as arrangement fees, so factor all of this into your decision and ask your mortgage adviser about them.

In the past, remortgages were popular as homeowners sought to withdraw equity from their properties to fund the likes of home improvements or holidays. In the current economic climate with slowing house prices and higher interest rates, this is not such a common occurrence and a remortgage should really be driven by need rather than luxury (see our learning zone section about bad debt).

Potential Remortgaging Problems

As a result of the credit crunch, many lenders pulled their larger loan-to-value (LTV - the amount lent as a percentage of the property's value) mortgages in spring 2008. All 125% mortgages were abolished, meaning that borrowers could no longer obtain loans for more than the property's worth. Although this wasn't good news for first-time buyers, it also reduced the chances that borrowers already on such deals would be able to get similar percentage loans when they came to remortgage. You may find that you need to build up more equity in your property before you can remortgage as most lenders will only offer a LTV of 80% at the moment.

Lenders are being tighter with who they lend to and how much they lend given the current economic situation, so if you managed to secure a good mortgage deal a couple of years ago, don't automatically  expect a similar rate.

How to Remortgage

If you are staying with your existing lender, then remortgaging should be relatively straightforward. Your lender will may contact you before your mortgage term expires to talk through your options. If not, you can get in touch with them.

If you feel a bit overwhelmed by the choice, then you may like to enlist the help of a independent mortgage adviser. Not only will they be more adept at finding the right mortgage for you, they also have access to products that aren't available direct to consumers. All mortgage advisers are regulated by the Financial Services Authority, meaning they are bound by a code to treat customers fairly. They have to find the deal that is right for each borrower and can not just recommend products that may be lucrative for themselves.

Things To bear in mind When Remortgaging

• There are lots of different types of mortgages - fixed rates, capped rates, discounts, cashbacks, flexible deals and trackers etc. Make sure the new lender or mortgage adviser explains the pros and cons of whichever deal or deals you are interested in - don't just look at the headline rate, consider all the different parts of the mortgage
• Whatever type of remortgage deal you opt for, the lender or mortgage adviser should tell you what interest rate you will be paying and, in the case of a fixed or capped rate, how long this rate will apply for
• If you are remortgaging onto a better deal, the lender or broker should be able to show you how much you will be saving per month (unless you are increasing the size of your mortgage at the same time, in which case repayments might not be coming down). If interest rates have risen since you took your last mortgage out, you may be looking at an increase in your monthly repayments
• If you are considering a discount, fixed or capped rate mortgage, you may have to pay the lender's SVR when the mortgage deal finishes
• Your mortagage adviser should tell you exactly what your monthly payments will be at the rate quoted. In addition, make sure they show you how much you would be paying at the standard variable rate to give you an idea of what you will be paying after your product term comes to an end (you can of course consider looking for a new mortgage deal when your current deal comes to an end).  You can also work your new repayments out for yourself using our mortgage calculators
• The annual percentage rate (APR) has to appear in all adverts alongside the headline mortgage rate. APRs are meant to provide customers with a true reflection of the cost of the loan, and help you to compare different deals. However, in practice the APR is unreliable and no substitute for individually-prepared quotes listing all upfront and ongoing costs (ask your mortgage adviser for this)
• Currently, most mortgage lenders apply early redemption charges (ERCs) to certain deals, such as fixed rates and discounts, for example. An ERC is usually calculated as several month's interest on a loan, and can run to thousands of pounds. You may be charged an ERC if you pay off or switch your mortgage within a certain time period. Before you remortgage, check whether ERCs apply to your existing deal, and if so, how much they will cost. Exit fees are charges levied when you move to a new lender
• The average product fee on a mortgage is now around £1,000 so be prepared to factor this into your budgeting when you are remortgaging
• It usualy takes several weeks for a mortgage to complete, though it can take longer if there are complications. Your mortgage adviser should give you an idea of the time-scale involved, or if you aren't using an adviser, you will have to rely on your lender's estimate
• Remember, you can remortgage as many times as you like, and as often as you like. But bear in mind that you may well be liable to pay ERCs if you are currently on a fixed, capped or discounted rate. And you may have to pay arrangement fees.  You should look at your mortgage every year or two and see whether remortgaging would save you money

Useful Links

>>> Mortgage Sharing
>>> Guarantor Mortgages
>>> Government Schemes
>>> First time buyer mortgages
>>> Mortgage Calculators
>>> Interest Only Mortgages
>>> Mortgage Blogs - News & Articles