Essential guide to remortgaging
Mortgage payments are the biggest monthly expenditure for many homeowners.
You try to cut the weekly grocery shop, save money on energy bills and - in the most extreme cases - limit shoe shopping.
So it makes sense to try and save money on your mortgage too. It also follows that as a very large expenditure there should be more room for larger savings.
In the past people would get a mortgage with a 30 year pay-back period, sit back and time would pass.
Now, with bargaining skills sought after and people’s circumstances changing more often, it can pay to change your mortgage to suit your lifestyle.
The large mortgage market is confusing and off-putting for many but this competitive market is where you can find a better deal.
Remortgaging is changing from your current mortgage lender to a new one for a deal that works better for you.
Top reasons for remortgaging
The main reason is to save money, but there may be several situations that prompt you to look for a better deal:
Moving House. Moving house will often prompt (or force) you to reconsider your current mortgage deal. Whilst it is possible to transfer some mortgages to a new property, if you are moving up the property ladder it will often make more sense to get a new mortgage that allows for additional borrowing.
You want a more flexible mortgage to suit your new situation. If the mortgage you signed up to 5 years ago doesn’t allow additional payments and you’ve had a sudden windfall, a) lucky you and b) you’ll possibly want a mortgage that does let you pay back faster. Likewise if you need a payment holiday (don’t we all) you’ll want to ensure it’s possible. A simpler mortgage means a lower interest rate so don’t change to a fancy mortgage unless you actually plan to use its features.
You want to release equity. Changing your mortgage lender gives you a chance to renegotiate the terms of your mortgage. If you started with a 75% mortgage but would like to increase to 80% you will release some of the equity in the property value (providing house prices haven’t fallen) which you can free up for paying university fees, buying a new car or just having fun. Obviously having a larger mortgage will usually mean higher repayments and you are less likely to get as good a deal.
Your interest-only mortgage hasn’t worked as well as you’d hoped. You may have chosen an interest only mortgage and invested elsewhere (e.g. in an endowment insurance policy) to cover the capital repayment due at the end of your mortgage. These investments in theory cover the majority of, if not all of your initial borrowing capital by the end of the mortgage term. However recent economic events have seen many people left with a significant shortfall on their initial mortgage amount. Changing to a repayment mortgage can mitigate this damage and let you pay off some of that shortfall now, rather than having to find a lump sum at the end of your mortgage period.
You want to take advantage of the (relatively) low interest rates. If you have many other debts it might seem sensible to consolidate these onto your mortgage to pay off the outstanding debts. Whilst this seems tempting, it comes with a big caution; you are securing this money on your home. Remember the small print - ‘Your home may be repossessed if you do not keep up repayments on your mortgage’. This often doesn’t make financial sense in the long-term. Borrowing long-term at a low interest rate could still cost you more than borrowing short-term on a high interest rate. Make sure you do the maths first.
Your product is no longer competitive. With so many products on the market which change continually you may find a better product. This is often the case if you have had a fixed interest rate for a period which has now come to an end and the rate has converted to the higher variable rate.
What are the potential pitfalls?
Remortgaging is not a decision to take lightly.
As with many products we see advertised daily, those which seem too good to be true often are.
Do your research
With mortgages it really is important to consider that what suits you now might not in the future, so thinking ahead and doing research in advance is key.
You may find yourself lusting after a much better deal but unable to get it because of the terms of your current mortgage.
Don’t be hasty, think about waiting out any terms necessary and avoiding paying harsh penalties. Remortgaging may not be cost-effective. See if your current lender can soften the blow a little by moving you to another of their deals as a compromise.
Timing is key
Remortgaging requires effort. You may lead a busy life and have only a small window of time and energy to decide to do this.
Understandable but costly if you decide to change when the market is fluctuating towards its less forgiving end. You may be better waiting it out and trust you’ll get a second wind.
It makes sense that the smaller (proportionally) your mortgage, the better deal you’ll get from your lender.
If you have a small equity or even, as we’ve seen increasingly over the last few years with falling house prices, negative equity, it is probably not worth remortgaging. Good deals will be few and far between and the cost of remortgaging will probably outweigh the savings.
Your financial health
Mortgage lenders assess your financial health when you take out your mortgage to decide on the terms of the loan.
If your circumstances have changed, such as going from two salaries to one, remortgaging may not fetch as favourable a deal as before.
Likewise if your credit history is worse than when you took out your original mortgage, you are unlikely to secure a good deal, especially since lenders are more wary of who they lend to in recent years.
Check with your current provider
As with any service where you are looking for a better deal, always check with your current mortgage lender. Make sure you are on the best rate they can offer you first.
They should be keen to keep your custom so use this to your advantage.
Remortgaging as a process will cost you money. Ensure any exit fees, early repayment charges, broker fees and legal fees do not exceed what you will save long-term.
Seek proper advice
We won’t go into the many, many different types of mortgages available - the list is far too long and there is plenty of useful information out there.
Please only use this article as a prompt for getting more information from a financial advisor or mortgage broker and not a substitute. They will be able to give you advice based on your own specific circumstances and will go into far more detail.
Once you have made a decision with the professional advice from your financial advisor or mortgage expert, you will need the help of a legal professional to assist you through the legal process. This is where our property experts can help you.
What is the legal process?
So you’ve hunted high and low and finally found the deal that works for you. What next?
1. Once instructed, we can send you our client care letter requesting photo identification for money laundering purposes.
2. We will then await the mortgage offer from your lender. A valuation of the property carried out by the lender will follow.
3. We will carry out searches similar to those undertaken when purchasing a property.
4. We will write a report on title based on the findings of the searches and let both you and the lender know the results.
5. The new funds will be transferred to us from the lender. We will repay your existing mortgage and send on to you any balance.
The whole process should take around 4 weeks from the time we receive the mortgage offer.
Let us help
If you would like a quote for our services, or are in a position to instruct a solicitor, please contact Tim Langford and Michelle Layton on 0121 705 7571 (Solihull office), or Asia Bi on 01564 779393 (Dorridge office).
This article is for general information purposes only. It does not constitute technical, financial, legal advice or any other type of professional advice and is no substitute for specific advice based on your individual circumstances. We do not accept responsibility or liability for any actions taken based on the information in this article. For more information, please click here.