Remortgages

Do you know what interest rate you are paying on your mortgage, or if you could save money by switching to a new lender? If you aren’t sure, then you should do something about it as you could save thousands of pounds. It is a good idea to review your mortgage from time to see if you could save money. Here we look at your remortgage options.

Remortgaging explained

Everyone with an existing mortgage should think about remortgaging. Remortgaging means taking out a mortgage on a property you own already to replace an existing mortgage, or to borrow more money. First, you need to work out how much you could save by remortgaging. It could be thousands of pounds.

When you might want to remortgage

Remortgaging could make financial sense if:

• You are on the standard variable rate (SVR) – the standard variable rate (SVR) is a mortgage lender’s normal interest rate for mortgages. SVRs tend to be much higher than fixed rate, or tracker interest rates and generally move in line with the Bank of England base rate although lenders can change SVRs at any time. You will normally go on to the SVR at the end of an introductory rate like a fixed rate or tracker deal. It is generally not a good idea to be on the SVR, and you may be able to save money by switching to a new deal.
• Your fixed rate deal is coming to an end - a fixed rate mortgage protects you against interest rate rises as the interest rate is fixed for a period of time. By remortgaging you could take out another fixed rate deal and continue to protect yourself against future interest rate rises. If you are already on a fixed rate deal, before remortgaging, you need to take into account any early repayment penalties. Early repayment penalties can be very high, and it could cost 1 to 5% of the amount you borrowed. However, it may still be worth checking out current remortgage deals as you could save money or you may decide you want the security of a fixed rate for a longer period.
• You want to borrow more money or pay off debts – remortgaging could allow you to borrow more money and increase the size of your mortgage to pay off debts, or to make home improvements, etc. Borrowing more money will only be possible if the value of your property is sufficiently more than the amount you want to borrow.
• You are worried about interest rates going up – remortgaging could allow you to move on to a fixed rate deal to protect against future interest rate rises.
• You are unsure what interest you are being charged or how long is left on your mortgage – it makes sense to review your mortgage from time to time to check that you are on track to repay it by the end of the mortgage term or to see if you could save money switching.

What to take into account

Before remortgaging you need to look at the deals that are available and work out what sort of remortgage you want and how much you could save taking into account any fees. Things to consider include:

• Mortgage fees - When comparing mortgages you need to take into account the cost of remortgaging including, legal fees, mortgage fees and any early repayment charges on your existing mortgage. When you are searching for a fixed rate and comparing mortgages, you should take product fees into account rather than just looking at the interest rate. You may be better off with a mortgage at a higher rate of interest if the overall cost, including fees, is lower.
• Affordability checks - You will only be able to remortgage if you can afford the new monthly repayments. Even though you already have a mortgage, the new lender will check to see if you can afford the new mortgage taking into account your current outstanding debts and outgoings. If your financial circumstances have changed since you took out your mortgage, or you have more debt or higher outgoings you may find that the new lender may decide that you can’t afford the new mortgage repayments and you won’t be able to remortgage.
• Proof of your income - You may need to provide evidence of your income from bank statements, and if you are self-employed you may need to provide your tax returns to prove your income. As with any credit application you should check what your credit score is and make sure your credit file does not have any mistakes that could affect your application. Make sure you pay any bills and credit cards on time and don’t miss any repayments on credit agreements.
• Check your credit file - Before applying for a remortgage or other forms of credit, check your credit reference agency files from each of the three credit reference agencies by paying £2 for your statutory credit report (www.equifax.co.uk, www.experian.co.uk and www.callcredit.co.uk). Remember each credit application is recorded on your credit file and can affect your credit score and your chance of taking out more credit.
• Remortgaging a Buy-To-Let Property - With a buy-to-let property, mortgage providers usually require a lower loan-to-value ratio compared to standard mortgages. In most cases, the LTV needs to be 75% or lower (though are are some lenders who will lend at a higher LTV). If you want to remortgage your buy-to-let property, or release equity, you'll need to keep this in mind.

What sort of remortgage to choose

Before remortgaging you need to decide what kind of mortgage is right for you. The main types are:

Fixed rate deal

The benefit of a fixed rate deal is that the interest rate won’t change for a set period of time, say, two to 5 years. A fixed rate also gives you the certainty of how much you will have to pay each month for a period of time. If interest rates rise, you are protected, and your monthly repayments won’t change.

Tracker deal

You may get a lower interest rate with a tracker deal that moves in line with changes to the Bank of England Base Rate.

Standard variable rate

If you are paying the standard variable interest rate on a mortgage, then you should look to see if you could get a better deal elsewhere.

How to shop around

Use a mortgage broker or comparison site to help you choose the right mortgage. However, they won’t necessarily tell you about deals available directly from lenders.