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Your mortgage payments are probably your biggest monthly expense, and with lenders starting to raise rates, you don’t want to pay too much. It is therefore important to choose the best possible mortgage rate if you are doing a remortgage. If the numbers confuse you, this remortgage guide will help.
We are currently seeing the best mortgage rates of all time with interest charges hitting all-time low. However, it is better to put on your skates, because you never know when the frost will thaw! So check out our remortgage guide below for everything you need to know.
The guide to refinancing
What is the remortgage?
It is simply a matter of moving your mortgage from one transaction to another, either with your current lender or with another.
You will typically remortgage at the end of your current contract to keep repayments as low as possible. If you don’t take action, you’ll switch to your lender’s Standard Variable Rate (SVR). These rates currently average around 4%, which is much higher than the rate for new mortgage transactions. So you will find that your repayments will suddenly increase.
You can also remortgage to borrow a larger amount using the equity in your property to finance home improvement projects, for example, or to pay off other debt. Mortgage rates are generally cheaper than other forms of borrowing, such as credit cards or personal loans.
How does the remortgage process work?
It is generally a relatively straightforward process. Use a broker as a guide to remortgage (more on their benefits below). Start looking on comparison sites to check rates about three to six months before you want your new deal to begin. This gives you plenty of time to go through the process and close a new deal.
Jo Thornhill, Mortgage Expert at SilverSuperMarket, says, “Identify the right deal for you, then apply through your broker or directly through your chosen lender.” The new lender performs an appraisal to verify that the property is sufficient collateral for the loan, and many offers offer free appraisals.
The lender will also assess your financial situation, and if they are happy to go ahead, you will be given an offer. Finally, your mortgage will be legally transferred and your new mortgage account opened.
When is remortgage the right choice, and when is it not?
Remortgage is usually the right thing to do if your deal ends. And, if you now have a large chunk of the equity in your home, you’ll be in a great position to get a competitive offer. The best deals are for homeowners looking to borrow 60% or less of the value of their home.
Be aware that if you remortgage before the end of your current contract, you will most likely face an early repayment charge (ERC). ERCs can be onerous and are typically charged between 1% and 5% of your remaining mortgage balance. So if you have a mortgage of Â£ 250,000, the penalty could be as high as Â£ 12,500.
If you’re sitting on the SVR, it’s generally wise to remortgage. However, there are a few scenarios where staying put makes sense. For example, if you are in the process of moving, it may be better to stick with an SVR without penalty, or you risk penalties for moving on to another transaction.
How much can remortgaging save you?
If you go from a 25-year Â£ 200,000 repayment mortgage from an SVR at 4.41% to a two-year fixed rate of 2.29%, you’ll save Â£ 5,405 over two years, according to the ‘Financial Analyst. Moneyfacts.co.uk.
The number of new mortgages has continued to grow, despite recent rate hikes. The two- and five-year average fixes remain low at 2.29% and 2.59% respectively, according to Moneyfacts. “But compare the different options and take into account the whole package, including the costs,” said a spokesperson.
How to verify eligibility?
Chances are, you will qualify for offers from your current lender. Going down this path can also speed up the remortgage process. Your lender may offer a simple “product transfer” to convert your mortgage into a new offer and keep your business.
By sticking with your current lender, you’ll also avoid paying mortgage fees, saving you thousands of dollars. You also avoid going through the whole financial appraisal process. If your situation has worsened since you took out your last mortgage, this could help.
But remember that there are thousands of offers out there and you want to pay off your mortgage as little as possible. So, also check out any offers you might qualify for on the open market by talking to an independent mortgage broker.
How to prepare for refinancing?
Securing any mortgage comes with admin. As part of the process, your credit history will be checked. This shows how you’ve handled your previous debts, so it’s worth seeing where your score stands. You can check your credit report for free at agencies such as Clearscore and Experiential.
Consider your expenses as well, as lenders will take a close look at them when they do their âaffordability assessmentâ. Keep in mind that your finances will also be subjected to a âstress testâ to verify that you can afford repayments if interest rates rise up to 7%.
What is the advantage of using a mortgage broker and how do I find one?
You shouldn’t automatically go for the offer from your current lender, unless you have to, especially if you have a lot of equity in your home. But the mortgage market is constantly changing, which can make it difficult to choose and compare offers. A broker will make an excellent remortgage guide. They have up-to-date professional knowledge and will speed up the process.
You generally won’t pay a fee to set up a call with a broker. They can help you find the best rate and type of mortgage for you, so this can be a very useful process. For example, you might want to consider a compensatory mortgage if you have substantial savings but don’t know where to start.
Brokers will negotiate with lenders on your behalf and expedite the application process. Some offers are also exclusive to brokers and you want to make sure you have all of your options.