If you are interested in cutting your monthly repayments, paying off your debt and reducing the amount or term on your mortgage, you should consider a remortgage. Remortgaging is when you move your mortgage from one lender to a new lender.
• Remortgaging will reduce your monthly repayments and secure you a cheaper mortgage
• Remortgaging releases some of the built up value in your home to spend on other things such as debts or home improvements
• Remortgaging reduces monthly repayments and extends the term on your loan, which means it will take longer to pay off the loan
• Remortgaging reduces the term of the mortgage. If you find a cheaper deal and keep your repayments the same as they were before, you will be mortgage-free faster.
Because of the recent credit crisis, building societies and banks have tightened up the criteria for lending mortgages. Typically, they demand deposits of approximately 20% before they consider an application for mortgage. Putting down a 40% deposit widens your approval options and will land you a lower interest rate.
If your original mortgage required no deposit, there might not be enough equity to remortgage. In this case, you would have to stick with what you have. If you can switch, there are some steps you should follow to remortgage.
1. Paperwork – You should plan to remortgage about six months before your existing deal ends. Gather up your bank statements to see what you are currently paying for your mortgage. If your mortgage is a variable rate or tracker, it’s probably gone down a bit. If so, you need to see how much you were paying before the rates fell so you know what you can afford every month.
2. Cost of Move – Check all the small print to see if there are early redemption charges which makes the remortgaging too costly. Make sure you take note of the exit fee the lender charges for closing the mortgage. Call the lender to get a payoff quote on what you owe plus any additional charges. Check that the exit fee they quote you matches the one in the original lending agreement. The lender is not allowed to up the fee once you have signed off on the loan.
3. Check Loan Restrictions – Don’t assume that the early redemption charge ends when the fixed or discounted rate ends. Some loans contain overhanging tie-ins. You might find that you have to pay the lender’s SVR for a period of time after the first deal ends. If the interest rate is low, this is not a bad thing because some SVRs are even lower than the fixed rate mortgage, but if the rates rise, lenders tend to raise their SVR, so being stuck on that rate would be expensive overall.
4. Finding a Mortgage – Decide if you want a fixed rate, variable rate or tracker, and track down a deal. Talk to lenders, and use the best-buy tables in the newspapers. If you don’t want to do the work yourself, use a mortgage broker. Keep in mind that some lenders don’t offer their best rates through a broker. If you have money for a deposit, have bad credit or are self-employed, going through a broker is a good idea.
Once you find out how much the total switching will cost, you can decide if remortgaging is worth it for you.