Remortgaging

Remortgaging

Remortgaging involves switching to a new lender to secure a new rate that best suits your current requirements.

A typical remortgage scenario is as follows:

You took out a mortgage product with lender red about two years ago.

Your existing mortgage balance with lender red is approximately £150,000.

Property value is £200,000 (75% LTV).

You are currently on a tracker rate of 2.45% (i.e., Bank of England Base Rate + 1.95%) and paying £670 per month.

Your current deal is coming to an end shortly and lender red has advised that you will revert to their current standard variable rate of 4.5%, which means your mortgage payments will increase from £670 pm to £874 pm (a £204 pm increase).

However, as an existing customer, lender red is also offering you the following new rates:

2 year fixed rate at 2.99% (£753 pm) or a 5 year fixed rate at 3.84% (£820 pm).

Your preference is for a 5 year fixed rate.

What do you do next?

Shop around and compare other 5 year fixed rate products to ensure you are getting the best deal and saving thousands of pounds.

Have a peek at the best buys table: MortgageIntellectual.com/mortgagerates

Best buy tables are excellent for informing you of what deals are available, but what they don’t provide is how easy it is to obtain those deals. They don’t provide you the lender’s criteria for getting those deals.

We all want the best rate, but please be cognitive that the lender’s criteria has to be embodied in your evaluation of alternative mortgage products. Adopting this approach will ensure your remortgage application is a smooth process.

You spot a 5 year fixed rate at 3.29%, which you feel is quite competitive but your broker identifies a better rate: a 5 year fixed rate at 2.69% with lender blue.

An application is submitted to lender blue.

Lender blue is satisfied with your income and affordability and they instruct a surveyor, who confirms value of your property is £200,000.

Lender blue approves your mortgage and proceeds to issue you a mortgage offer for £150,000.

Your monthly cost on a new mortgage with lender blue is £730 pm, compared to paying £820 pm with your existing lender; you are saving yourself approximately £90 pm. Over five years, you have saved yourself £90 x 60 months = £5,400. Therefore, it makes financial sense for you to switch (remortgage) from lender red to another lender (i.e., lender blue).

In practice, when remortgaging, the majority of lenders offer free valuation and legal fees. Lender blue pays the cost for the valuation and they instruct a solicitor to handle the conveyancing. The solicitor will act for you and lender blue.

Lender blue sends £150,000 to your solicitor, who then sends it to lender red to pay off your existing mortgage and you’ll have a new mortgage of £150,000 with lender blue.

This is a standard remortgage. It’s called a pound for pound remortgage because you’re borrowing the exact amount you need to pay off your existing mortgage. Your solicitor will request a redemption balance from lender red to ensure that the funds being received from lender blue is the exact amount (i.e., not a penny more, not a penny less) to pay off your existing mortgage.

Things to consider when looking to remortgage

Your remortgage search and application should commence within three months of the expiry date of your current product. This will allow for a smooth transition to your new rate without reverting to your lender’s standard variable rate.

Ascertain the current value of your property. Check on Zoopla or nethouseprices.co.uk to get an idea of the value of your property. Look for identical property sales in the last six months. Alternatively, ask a couple of estate agents what your property could achieve in the current market. The more equity in your property means better rates. It goes without saying that you will have a good idea of your outstanding mortgage balance.

Find out what rates (plus all the associated costs) your current lender can offer you. Assuming your lender meets your new mortgage requirements, find out what new deals they can offer you and use this as a yardstick to compare similar products. Contact an independent whole of market mortgage broker and tell them what your lender has offered and whether they can find anything better.

Check your credit file to make sure that the information is accurate and that there are no anomalies.  It does not happen that often, but you do get the odd case where an application is declined due to unknown adverse credit recorded on your credit file. You can access your credit report for free at www.creditexpert.co.uk.

You will have to complete a financial questionnaire and most importantly, a detailed income and expenditure form to demonstrate that you can afford the mortgage. There is no hiding the fact that you will have to go through the same process that you did when you took out your current mortgage. I know some of you will perceive this as a laborious process, but it doesn’t take that long — 45 minutes, tops. Lenders come out with new mortgage rates every other week and if you can access better products and save money at the same time, then it’s a no-brainer.

Interest Only Mortgage Borrowers: A number of banks have stopped offering interest only mortgages while those that still offer it have tightened their lending criteria. If you have an interest only mortgage and you don’t have at least 25% equity in your property, then you will be faced with a restricted choice of lenders. If you are borrowing up to 50% LTV with at least £150,000 equity, you’ll have more remortgage options. If you want an interest only mortgage, then contact an independent whole of market mortgage broker who will be able to advice you on what’s available.

Remortgaging and capital raising: If you are looking to remortgage and borrow additional funds, the bank will need to know from the outset the purpose of the additional borrowing. For example, you may be looking to:

  • pay off credit cards or a loan (debt consolidation)
  • make home improvements (buy a new kitchen, build a loft extension)
  • build a home extension
  • purchase a BTL property
  • raise a deposit for a second residential home
  • purchase a holiday home abroad

 

Depending on its purpose, there may be restrictions on how much they can lend you. In some cases, you may have to provide the lender with a breakdown of how the extra funds will be utilised.

Once again, the best rate coupled with the lender’s criteria and your mortgage objectives is what has to be considered from the outset. If you want to remortgage and raise additional funds, then it’s best to contact an independent mortgage adviser with the expertise of sourcing and arranging the best deals based on your current requirements.

 

 

 

Mortgageintellectual.com is not recommending that you invest in any specific property. You must conduct your own due diligence before investing in property. Property prices can rise and fall in value and past performance of the UK property market is no guarantee to future performance.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

The Financial Conduct Authority does not regulate most types of buy to let mortgages, bridging loans, development loans and commercial loans.

 

 

 

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