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RemortgageAll about remortgaging with Christian Miles.
What is remortgaging and what are my options?
A remortgage is when somebody applies to transfer their existing mortgage arrangements to a new lender. The new lender will be responsible for redeeming the debt with the current mortgage provider and will then apply their own product terms to that debt. The new terms agreed for remortgage purposes could be a reduction in rate or an extension to or reduction in the term of the mortgage or even the method applied to the repayment of the remortgage; for example, a switch from capital and interest repayment to interest only providing it is appropriate to do so.
There are several reasons why somebody might want to remortgage and that could be because the rate being offered by their current lender is no longer competitive, they need to borrow more funds with which to complete a project, debt consolidation, to redeem part of the existing loan due to windfall and then to procure a better rate on the remaining balance, the reasons are many fold. However, a remortgage by definition will be treated as a new loan to the new lender and so will be subject to affordability assessments, a credit search, property valuation and all of the usual referencing.
Another option, is of course, a Product Transfer, whereby the existing lender retains the lending and applies a new product, presuming the lender offers what is known as a “follow-on” product, and the reason may be that what is being offered is competitive from a rate perspective. Accordingly, any move to remortgage to a new lender, once all fees have been added, may make the transaction not financially viable from a cost-effective point of view. However, this is not before a mortgage adviser would have evaluated the market to ensure that this would be the case and rule out a remortgage.
When is it a good time to remortgage?
Usually, a client will look to remortgage when they are coming towards the end of a fixed rate product and the reasoning could be for all of the scenarios above. We’re always in touch with clients six months before the fixed rate product ends, to give us enough time to plan the next step.
Another scenario might be if you want to apply for additional borrowing. You might want to consolidate some debt – credit card balances or car finance, make some improvements to the home and this could be as simple as updating a kitchen or bathroom. These are typical reasons for a remortgage.
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When is remortgaging not a good idea?
So remortgaging is not a good idea potentially if you’re partway through a fixed rate product. There might be an early repayment charge payable if you end the mortgage early and that could prove to be quite costly depending on the size of the mortgage balance and the penalty that the lender would want to impose.
Another reason why it might not be a good idea is if you have a low interest rate – you could be one of the lucky ones that still have a good rate. The new rate might be quite a lot more expensive.
Or, you might have had credit problems since taking out the last mortgage, which may mean you could no longer remortgage to a high street lender. In this situation you may only have the option to remortgage to a specialist lender, happy to consider adverse credit, but it may mean a higher monthly payment.
Why remortgage at the end of a fixed rate deal? What happens if I don’t?
If you leave your mortgage until after the fixed rate product expires, you’d move on to what’s called the standard variable rate. Every lender sets their own rates, which are often quite costly and generally linked to the Bank of England base rate.
As stated earlier, at Fort Advice Bureau, we contact all our clients six months before their fixed rate ends, to give us enough time to plan the next steps. We always aim to avoid moving on to the standard variable rate.
How do I improve my chances of getting a good remortgage?
Be prepared. Always look after your credit report – that’s very important. Make sure any monthly credit commitments you have are paid on time, because any missed payments could mean that we could no longer remortgage via a high street lender.
If we have to speak to one of the more specialist lenders, their interest rates will always be higher than a high street bank/building society. Looking after your credit report is very important.
What fees are associated with a remortgage?
There could be several fees, and as I said earlier there might be an earlier repayment charge if you’re coming out of a fixed rate product early. Potentially the lender might have a product fee and usually you can add these onto the loan or pay them upfront.
There might also be a valuation fee, so an independent valuer will want to come round to the property just to assess its value in the open market. There is also a broker fee for the advice we give but in the case of a product transfer, we actually deal with this on a fee free basis.
How can a mortgage broker help if somebody is looking to remortgage?
In essence, our job is to look at the whole market, including high street banks, building societies and specialist lenders, to find you the most suitable and appropriate mortgage for your needs. We’ll deal with your application from start to finish and that means you can relax, knowing that somebody with experience is guiding you through what might be a difficult process and making it easy.
Think carefully before securing other debts against your home.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Your home may be repossessed if you do not keep up with your mortgage repayments.