After the initial period on your mortgage expires, the smartest thing to do is to remortgage in order to save money on monthly payments. It is possible that remaining with your same lender under the standard variable rate will provide the lowest repayment, but it is far more likely that shopping around for different terms from another provider will net you a better deal.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
(1) Don’t let repayment charges deter you
Bear in mind that it’s in your current lender’s best interest to keep you, so they may work with you for a better deal.
However, remortgaging with your existing, or a new lender, may incur fees for ending your relationship and even for repaying your loan back early.
Don’t let these charges deter you from remortgaging as in the long run you’ll save far more money than you may pay in fees.
(2) Know when it’s time for a change
There are a variety of reasons for switching lenders. Perhaps you need more flexibility to make overpayments or on the other end of the spectrum, the freedom to be able to miss a payment during hardship.
Maybe you currently have an endowment or interest only mortgage and fear that you won’t be able to pay back the principle at the end of the loan. Or you might want to take a further advance and your current lender won’t allow it.
(3) Know when to stick it out
There are certain circumstances where it isn’t advantageous to remortgage. You might already have a great deal so changing lenders would be foolish. If you have little left to pay or are near the end of your payments, it’s also not a great idea to switch.
But those are rare situations – it’s more likely you are stuck with your current deal because it’s just too costly to move or the rates aren’t favourable at the time you want to change.
Another reason could be that the circumstances under which you initially took out the loan have changed and it’s doubtful you’d be able to secure another loan, let alone one with better terms.
The best remortgaging scenario would be if you own more than 10% of your home, have good credit, and still have equity in the property.
(4) Ready, steady, go – what you need to know to change your mortgage
Once you’ve decided remortgaging is right for you, you’ll need to find out some important details about your existing mortgage. Firstly, find out if you have an early repayment charge and if so, how much it will be and until what date it applies.
This will help you decide when to make the switch. Secondly, check your offer document or key facts illustration for any mention of a deeds release fee. If your documents don’t disclose a fee, you should be in the clear. Thirdly, figure out the amount you still owe to your current lender. This is as easy as ringing them and asking how much the payoff amount will be on a certain date, taking into account normal repayments you will make before the new mortgage takes effect.
Unfortunately, this is only the beginning, but armed with this information, you can start the remortgaging process. Here’s what else you’ll need to work out:
- How much will lenders loan you?
- How much equity will you need in your home?
- What counts as equity?
- How much equity is needed for a good deal?
- What’s the loan-to-value (LTV) amount?
- Is it possible to get into a lower LTV band?
At this stage, it’s best to engage a qualified mortgage specialist since it will become quite complicated.
Stay tuned for Part 2 next month, in this 2-part series about remortgaging, where we will detail 3 more useful Tips.
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