As the last decade has shown, the market for mortgages can change quite radically. So, the ability to arrange a new deal on your existing property has become increasingly important for current homeowners.
Why might you remortgage your home?
- To find a better deal.
There are two major issues to consider here. Firstly, you should find that deals become cheaper as your loan-to-value requirement goes down, as you pose less risk to a lender. So, if your current mortgage was agreed at 90% LTV five years ago, for example, you might now be in a position to remortgage to a 75% LTV loan.
Secondly, mortgage rates are currently at their most affordable levels since the turn of the millenium. Rarely has there been a better time for homeowners to switch to a better deal.
- To free up cash.
If you wish to make improvements to your home rather than move, remortgaging your property could be a useful solution to free up the cash you need.
Arranging a new deal that moves you from a standard variable rate of 4.5%-5% to a new initial rate of 2.5% could free up hundreds of pounds every month.
- To consolidate debts.
People have occasionally used remortgaging as a means of consolidating all of their debts into one place. If you are able to secure a remortgage deal below the rate of an unsecured loan, it could in theory prove a cost-efficient option.
But you might also wish to consider a 0% balance transfer card for existing credit card debts. The best cards on the market will now give you upwards of two years to make inroads into your debts without interest.
- To change mortgage type.
Perhaps you've decided to change your mortgage type – from a tracker mortgage to a fixed-rate deal, for example?
The Bank of England’s recent announcement that the base rate is unlikely to change until 2016 should make conditions much smoother for variable rate mortgage customers in the years ahead.
But many homeowners are keen to take advantage of the low fixed-rate offers by signing up for a number of years, which takes away all uncertainty for that period.
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There's rarely been a better time to secure a new deal on your mortgage.
What to watch out for.
- Arrangement fees.
The right remortgage deal could save you hundreds of pounds per month on your mortgage repayments. But it’s vital to consider the arrangement fee, which could run into thousands of pounds. Alongside legal fees and completion fees, this could turn an enticing rate into an uncompetitive one.
Striking the balance between the mortgage rate and arrangement fee to achieve the best deal all depends on the size of your loan. See our guide to mortgage arrangement fees for an example.
- Meeting the lender’s criteria.
You will remain restricted to products that reflect your current loan-to-value at the point of application.
Some offers may also require you to become a full banking customer with the lender (though some may offer additional discount or cashback in return).
With the new fast-track switching system set to launch in September 2013, might you consider this option for a better mortgage rate?
- Are there any penalties?
If you are currently stuck in a mortgage with a large redemption (or exit) penalty, it may not be worth pursuing a remortgage deal until this has expired.
Equally, be wary of terms such as these when examining potential new remortgage options.
- Not a debt solution.
Be wary of considering a remortgage deal if you are in trouble with managing your debts. Heaping more pressure onto your home loan might only increase the chances of you losing your home if you are struggling to meet your repayments.
How to get started:
- Find out from your current lender the value of your outstanding balance and any exit fees that you might be viable for. You might even be able to negotiate better terms with your current lender. As your loan-to-value reduces, you become a lower-risk prospect, and your bank might be keen to retain your custom.
- Find the best new remortgage deals for your needs. Once you know your new loan-to-value requirement, you can begin searching remortgage comparison tables. Using the remaining value of your loan, you can weigh up the rate and arrangement fees to find the most cost-efficient option for your requirements.
- When you’re settled on the right product, get applying online!
Following an application, the usual checks will take place. A new lender will need to receive your credentials and the necessary documentation from the current lender. The remortgage transfer should reach completion within around four weeks of your application.
Keith McDonald
Which4U Editor
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