As a borrower it pays to consider your own personal financial circumstances too when weighing up whether or not to remortgage.
When interest rates are low, lenders offer attractive remortgaging deals and the temptation among borrowers to free up cash or simply to save money on monthly repayments grows.
The Bank of England’s base rate is certainly one of the most important things to consider when remortgaging your property and unlike other matters – such as checking your credit score, conducting thorough research of the market and understanding the full details of your current mortgage arrangement – the base rate is one area where you are at the mercy of the markets as a borrower.
What does remortgaging mean?
Remortgaging is the term given to switching your mortgage to a new lender or switching to a different deal offered by your existing lender. Some people remortgage when they believe they can get a better deal than they have with their existing mortgage loan or they want to free up more capital from their property.
It can be a popular option due to changing economic factors that might lend themselves to more favourable mortgage terms and save you money.
So what’s the best place to start if you’re considering remortgaging? As with many financial matters, it all comes down to research and preparation.
If you’re considering remortgaging, or simply want to find out more, read on for some of the most important things to consider before remortgaging.
Research your remortgaging options extensively
You can either remortgage with your original lender or approach a completely new bank or building society for another offer directly or via a mortgage broker. To improve your chances of getting the best rates, ensure you take the time to research all the possible options.
This may take a matter of weeks and some tedious application processes. But ultimately, what you’re choosing is very important, so set aside the right time to restructure your future finances.
Check your credit score
Having zero debt in the course of your adult life does not necessarily make you an ideal candidate for a mortgage.
Your credit report contains information about your past credit cards, loans, overdrafts, mortgages and various utility payments. This may not seem that important to you on a daily basis, but it is the best way for a lender to estimate your ability to repay your mortgage and it will impact the remortgage deals you can access.
Having zero debt in the course of your adult life does not necessarily make you an ideal candidate for a mortgage. The credit report concerns itself more with proving your history of paying off debt over the years thus showing lenders your reliability.
A strong credit score will convince lenders that you have what it takes to pay back the mortgage and could open up better deals.
Timing your remortgage application
By the time you apply, you need to be completely satisfied you have found the right mortgage for you. Multiple applications will have a negative impact on your credit score, plus the application stage is the point at which you may be charged for securing a rate.
All lenders offer an Agreement In Principle – which his designed to give you a good idea if you are likely to be accepted for a product – without actually applying.
You may end up finding a better deal after some more research so don’t commit too early.
Check the small print
Remember remortgaging is not always the best financial option for you. Do you have early repayment charges attached to your current mortgage? These charges are likely to be triggered if you remortgage and move to another lender so consult with your broker or lender about what potential penalties you will face for early repayments before assuming you will save more money with the new mortgage than it will cost you to get out of your existing one.
How much do you need to borrow?
Make sure you have your sums straight on what you require before you start looking around.
Every lender has a different way of calculating how much they will offer you and what kind of deal you will ultimately get. They will consider things like salary, commission, investments, family status and any regular fees or outgoings.
Some homeowners turn to remortgaging when they need to borrow more than their current lender is willing to offer. In this instance, looking to a new lender might allow you to borrow more money as well as opening up the door to potentially better rates.
But don’t assume you’ll get the headline offers for the sum you want before you actually run through your personal circumstances with your potential new lender. Equally, if you need to remortgage to borrow a larger sum, make sure you have your sums straight on what you require before you start looking around.
Try to lower your LTV
Your LTV, or loan-to-value, is the size of your mortgage in relation to the value of your property. If your deposit was £10,000 and you took out a mortgage to fund the remainder of your £100,000 property purchase, you have a 90 per cent LTV mortgage.
The important thing you need to remember here is that the lower your LTV is, the less risky it is for the lender to offer you a loan against your property. Ultimately, the larger your deposit (and the lower your LTV), the better deals you will be able to access.
How do I work out my LTV?
To find out your loan-to-value band, divide the amount you owe on your mortgage by your home's current value. Now times this number by 100 and you’ll get your loan-to-value percentage. For example, if you owe £75,000 and your property is worth £275,000, your LTV is 27 per cent.
How much is your property worth?
It’s an obvious one but remember to check how much your property is actually worth. This will form the basis of your discussion with your potential lenders who will eventually send out their own independent valuers to confirm the value.
If your property’s value has dropped since you took out your original loan, it might be wise to wait until prices are back on the up before you remortgage.
As with the original loan, a remortgage offer will depend on the LTV. If prices have dropped in your area, the amount you owe on your mortgage will be a bigger percentage than it originally was, meaning you will need a higher LTV than your original mortgage was based on. The chances of a deal for a higher LTV being better than your current one are slim to none, so keep an eye on the market and make your approach to new lenders when the time is right.
Checklist for remortgaging
- Check your credit score
- Research all options in the market
- Don’t limit yourself to certain banks or lenders (i.e. your current bank)
- Decide how much you need to borrow
- Get a detailed assessment of your current mortgage condition
- Estimate the value of your property
- Get your finances in order
- Retrieve all the necessary paperwork
- Consider lowering your LTV band
Should you remortgage?
If interest rates are low, it could be a good time to consider re-mortgaging but make sure you do it with a clear understanding of how your future repayments are affected if interest rates change.
You should spend as much time choosing a remortgage loan as you did when you first decided to buy a property.
Remortgage numbers are on the up as we write in mid-2018 and UK lenders expect this trend to continue until the Bank of England's base rate rises to a level at which lenders are no longer offering attractive remortgage rates.
Like with any big financial decision, remortgaging should be treated with an appropriate amount of attention and consideration toward its long term impact. Seek advice whenever possible and do your best to thoroughly research the market.