Remortgaging your home is more-or-less the same process as getting the mortgage when you first bought the property, however it’s important to bear in mind your circumstances may have changed. For example, you may have moved job – or even become self-employed, or had a family, both can impact on what you can borrow. In addition, the value of your property may have increased, which may mean you borrow a lower percentage of the property’s value – and this can help secure a more favourable interest rate.
To remortgage, you effectively need to submit a fresh mortgage application, your home will be revalued by the lender, and you will be committed to the terms of the new product once your application has been approved – which may include an initial tie-in period.
The whole process can take some time, so you should plan well ahead and start looking for a new mortgage 6-12 months before your current deal or tie-in expires.
Here are five of the top potential pitfalls, together with suggestions on how to avoid them and make sure your remortgage goes as smoothly as possible.
- Not using a broker
Although lenders will often have exclusive deals for existing customers that may look enticing, there could be a much more suitable mortgage product available via a different provider.
This is why it’s advisable to work with a broker that is not tied to any particular lender. They can look at all current deals and help make sure you have the most appropriate product for your circumstances.
They can also help advise on the best options for your circumstances, without alerting the lender that you are considering remortgaging.
- Not understanding penalties and fees
Sometimes people aren’t aware of the fees their lender will charge for early repayment of a mortgage. Regardless of when you redeem a mortgage, most lenders will charge an administration fee for closing your account, which is commonly anywhere up to £300.
While this ‘exit fee’ may not be significant in the grand scheme of things, it is important to understand the early repayment charge (ERC) you will have to pay if you redeem a mortgage during the introductory period of a fixed-rate, tracker or discounted deal. The ERC is usually a percentage of the remaining mortgage balance, which reduces as the period gets closer to its expiry date. For example, if you have a five-year fixed deal, the ERC may be 3% in year one, but reduce to 0.5% in year 5.
Sometimes a new deal may be so much better than your existing one, that it’s worth remortgaging early and paying the ERC. So it’s certainly worth making enquiries if interest rates are coming down, regardless of how much time is remaining on your current mortgage.
- Not considering whether your circumstances have changed
Your employment status, salary, debt position and even whether you’re single or married can all have an impact – positive or negative - on how much you are able to borrow. When it comes to remortgaging, you may find that you’re not able to get another loan at the same level as your current mortgage, or you could be pleasantly surprised at the options that have opened up for you.
So, if your circumstances have changed since you applied for your current mortgage, it’s well worth discussing this with a broker, who can help you understand the effect it’s likely to have on your borrowing.
- Not remortgaging often enough!
The vast majority of borrowers have fixed-rate mortgage products that give a preferential rate for an initial period. During this time, there is a financial penalty for redeeming the mortgage, but once it has expired, you should be free to remortgage and move to a different product, with another lender if necessary.
Lenders usually release new products every three to four months, and they can be highly competitive with each other, which means it’s possible that there will be another product out there that may cost less each month than if you stay on your current deal once that initial discounted period has expired.
In simple terms, this means that it is worth considering looking to remortgage every two to five years (depending on the fixed term) in order to be aware of any better mortgage products for your circumstances.
- Not ensuring your home is presented as well as possible
Mortgage interest rates reduce as the loan to value percentage comes down, so the more your home has increased in value since you bought it, the better deals you should be able to access when it comes to remortgaging.
And in order for the lender’s surveyor to value the property at the best possible market rate, if they visit the property, it needs to be in the kind of condition you’d expect if it were on the open sales market: as well-maintained and appealing as possible. So, if you’re thinking of remortgaging, it’s well worth taking the time to carry out any necessary maintenance and freshen up the décor.
If you would like to discuss your current deal and current options for remortgaging, just get in touch with our advisers, either via our website or by calling 0800 144 4744.
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