How to remortgage
When your mortgage deal comes to an end, you may want to shop around for a new product. This is known as a remortgage.
Doing nothing and staying with your current lender after the end of the agreed term of your mortgage, say two or three years, will mean that you revert to the lender’s Standard Variable Rate (SVR).
If this rate is relatively attractive, you may not want to bother remortgaging. And if you have not built up much equity in your property, you may not be able to remortgage, as many lenders now insist on a minimum of 10% equity in order to secure competitive interest rates. But if you have a lot of equity in your property, you may well be able to remortgage onto a more attractive interest rate.
Reasons for remortgaging
Getting a better rate:
Typical reasons for remortgaging tend to be to get a better rate (especially if your initial deal period is over and you are about to revert to an uncompetitive standard variable rate), to consolidate debt or to release equity.
You may also have to remortgage if you want to move house. In such a situation, even if your lender will allow you to transfer your homeloan in theory, it will probably require a valuation of the property to ensure it meets its standards.
Remortgaging needn’t only occur when your mortgage term comes to an end. Some people take out a new mortgage simply to save money on their monthly repayments. For example, you may take out a fixed rate mortgage only for interest rates to plummet, leaving you stranded on a higher rate. Remortgaging to a more competitive rate in these circumstances may make financial sense.
Bear in mind that remortgaging is not a cost-free process though. Your current mortgage may carry penalties or charges if you try to leave it early, plus there will probably be costs associated with the new deal, so factor all of this into your decision.
In the past, remortgages were popular as homeowners sought to withdraw equity from their properties to fund the likes of home improvements or holidays. In the current economic climate with slowing house prices and higher interest rates, this is not such a common occurrence and a remortgage should really be driven by need rather than luxury.
The sub-prime remortgage:
If you had an impaired credit record (you may have previously been declared bankrupt or received a County Court Judgement) and took out a sub-prime mortgage in the past, you are likely to be paying a higher interest rate than a mainstream mortgage as you represented a higher risk to the lender.
But the intention of sub-prime mortgages was rehabilitation. If you have been successfully making your monthly mortgage repayments for a number of years, and you have managed to build up sufficient equity in your property, when you come to remortgage it will make it more likely that you will be able to access a standard mortgage deal.
But do bear in mind that, as lenders have pulled out of the sub-prime mortgage market, if you have not repaired your credit rating that could make it difficult, or perhaps even impossible, for you to remortgage.
As a result of the credit crunch, a number of lenders pulled their larger loan-to-value (LTV – the amount lent as a percentage of the property’s value) mortgages in spring 2008. You may find that you need to build up more equity in your property before you can remortgage as many lenders will only offer a LTV of 90% at the moment.
Lenders are being tighter with who they lend to and how much they lend given the current economic situation, so if you bagged yourself a good mortgage deal a couple of years ago, don’t necessarily expect a similar rate this time round.
How to remortgage
If you are staying with your existing lender, then remortgaging should be relatively straightforward. Your lender will probably contact you before your mortgage term expires to talk through your options.
If not, you can get in touch with them. If you feel a bit overwhelmed by the choice, then you may like to enlist the help of a mortgage broker. Not only will they be more adept at finding the right mortgage for you, they also have access to products that aren’t available direct to consumers.
All mortgage brokers are regulated by the Financial Conduct Authority, meaning they are bound by a code to treat customers fairly. They have to find the deal that is right for each borrower and can not just recommend products that may be lucrative for themselves. Bear in mind that they may charge for their services, which could be a factor in whether you choose to go it alone or not.