Remortgaging is changing your mortgage from one lender to another in the hope of getting a better interest rate or releasing equity. Sometimes your current lender will give you a better deal than you can find from another lender if you ask.
The four main reasons to remortgage are:
• You do not want to continue to pay your current lenders standard-variable rate because it is higher than others.
• You would like to change from a standard-variable rate to a fixed or lower rate.
• You would like to change the plan to a more flexible one to revise the pattern of your repayments.
• You need cash and can get it from the equity in your home.
How much does it Cost to Remortgage?
Remortgaging to save money on the mortgage rate can save you hundreds of pounds or more, but there are some things to consider first. You should not simply change to a lower interest rate. The type of deal you get for your unique circumstances should also be considered. Your current mortgage lender and the new mortgage lender will both have costs.
The current mortgage lender will most likely have early repayment charges if you are paying a fixed or discounted rate. These charges are calculated either as a percentage of the original mortgage loan, a percentage of the portion that has already been paid, a percentage of the amount still owed on the mortgage or several months’ interest. You current lender could also have exit fees that may be between 50 and 300 pounds. There may also be a final interest payment at the end of the month.
In order to know if you will save money by remortgaging, you should speak to your current lender and ask for a redemption statement. This will tell you how much it will cost you to change lenders.
A new mortgage lender will also have costs for new customers. Some of the fees are:
• Arrangement fee which may be a percentage of the total amount you plan to borrow
• Application fee
• Booking fee
• Legal fees which may be small
• A valuation and survey of the property for the new lender, which may sometimes be given for free to new customers
Mortgage lenders usually give an introductory deal to new customers. This may be a discounted or low fixed rate or a low tracker rate for a specified number of years in the beginning. This is usually between two and five years. Once this ends, you will most likely be put on the lenders standard variable rate which could be high. At this point, you may be able to find better rates from a different lender, and it would be worth remortgaging.
How to know if Remortgaging is a Good Idea?
The size of your current mortgage and the time remaining on the loan will have an effect on whether or not remortgaging is a good idea. The things you should compare are:
• The amount of the outstanding mortgage both old and new
• The time left until it is repaid
• The interest rates on the current and new mortgage
• The total amount of interest to be paid until the loan is repaid for both the old and new mortgage
• The savings on interest for the new loan
• The cost of changing lenders
If the savings on interest for the new loan is less than the cost of changing lenders, remortgaging will not save you money.
You can reduce your loan-to-value to get a better interest rate. There is a limit for the amount that can be borrowed according to the value of the property. This is the loan-to-value percentage. For people looking to remortgage, it is good to have a low loan-to-value rate because there will be more possibilities of getting a cheaper deal.
To calculate your loan-to-value percentage you divide the outstanding amount on your current mortgage by the current value of your property. Multiply this number by 100. For example, if the balance on your mortgage is 100,000 pounds and your property is worth 150,000 pounds the amount after dividing is 0.66. Multiply this by 100 and your loan-to-value is 66 per cent.
When a new lender values your property, make sure they see everything and not just the front of the house from the street. They may give a value that you believe is too low. With this, you will not get a good interest rate. If you feel the valuation is too low, you can ask the lender to reconsider or find a new possible lender. Some ways to convince a lender to raise the valuation of your property is to give the sale price of similar houses in your area and give a cost list of any renovations and upgrades done on the house.
Reasons to Save
It is good to consider the reasons you want to save money on your mortgage rate. These reasons are a factor to include when you decide if it is worth the cost.
If you want to pay down debt, make sure the debt has a higher interest rate than your new mortgage. Otherwise it is not a good reason. Credit cards and store cards have very high interest rates and would most probably be worth paying off as soon as possible.
A pension scheme is a good way to save, because the government will add to your contribution with tax relief. If you don’t have any kind of pension scheme, it may be better to start one with your savings so it will have time to grow rather than paying down your mortgage.
Another possibility that will make remortgaging to save money good is if you can find a savings account or investment that pays you a higher interest rate than you are paying on your mortgage.
It is possible to remortgage to save money on your mortgage rate, but there are many things to take into consideration first to be sure you actually are saving money. A new low interest rate may not be enough if there are other large fees that make remortgaging actually expensive.