When Should You Remortgage?
The recent economic downturn and ‘credit crunch’ has left thousands of homeowners with a major dilemma.
Large numbers of fixed rate mortgages and discounted standard variable rate deals are coming to an end, at a time when banks and other financial institutions have drastically cut back on the mortgage products they are prepared to offer homeowners.
This means that many borrowers are facing up to worrying rises in their monthly mortgage payments.
There are two main reasons why anyone would remortgage, either to reduce their monthly payments by finding a lower rate of interest, or to borrow additional money based on the re-evaluation of your property.
A remortgage should be simple to arrange. You simply transfer your existing mortgage arrangement to a new deal, hopefully on improved terms, without having the hassle of moving home. You may or may not change need to find a new mortgage lender.
However, whereas in previous years the remortgage market was highly competitive, the current financial climate makes it very difficult to find a good deal. But what should you consider before deciding to remortgage?
Know the Facts about your MortgageBefore you take any steps to remortgaging, you need to make sure that you know all the facts about your existing mortgage arrangement. You should work out what penalties you might have to pay if you exit your mortgage early.
For example, most mortgages that offer a competitive incentive, such as a fixed rate, a capped rate or a discount, are more than likely to come with special exit charges if you try to repay the mortgage before the term of the incentive expires.
These penalties are aimed at discouraging mortgage-owners from moving to find a better deal elsewhere, so you might find it worth your while to wait until the special incentive period is over before remortgaging.
Similarly, some mortgage products come with what’s known as ‘overhangs’. These tie a mortgage into the lender’s standard variable mortgage rate for a specific time period. If you try to move while in this period, you might also be liable to pay early repayment costs.
The Benefits of RemortgagingAfter you have weighed up all the costs of leaving your existing mortgage arrangement, you can start to think about the costs that will come with moving your mortgage.
These will include: a new mortgage arrangement fee, a valuation fee to determine the most up to date value of your property, and also solicitors’ conveyancing fees, although you may be able to avoid these if you decide to arrange a remortgage with the same lender.
A mortgage arrangement fee could work out to be as much as £500 - £800, depending on the size of the mortgage, the mortgage type and the lender.
If you need to borrow a high loan-to-value ratio (for example a mortgage worth 95% of the value of the property, you may be asked to pay a higher lending charge (HLC).
In today’s depressed mortgage market, the lender holds all the cards when it comes to setting mortgage fees.
If all these costs sound depressing, bear in mind that as you are not moving house, at least you will not have to pay any stamp duty on the purchase of a new property!
Make Sure Remortgaging is Right for YouChoosing when to get onto the property ladder is all about timing, and remortgaging is no different. There are times when remortgaging will be the smartest way to reduce your borrowings, control your monthly outgoings or profit from the increased value of your home.
However, although the current conditions of the mortgage market make this less of a possibility at present, it is still worth searching the market to see if you can find a better mortgage deal.
Your mortgage is more than likely to be your biggest financial commitment, so it is always worthwhile to weigh up the options and find out if you can move to a better deal.