From researching the market and doing your sums to repayment charges and evaporating equity, we’ve taken a good look at the pros and cons of re-mortgaging.
Put simply, re-mortgaging refers to switching your current mortgage to a new deal, and this can be with the same provider or someone new. Contrary to popular belief, it doesn’t mean you’re moving house and your new mortgage will still be secured against the same property.
Whether re-mortgaging is something you’re seriously considering or you just want to dip your toe in the water and find out a bit more, our simple guide of re-mortgaging do’s and don’ts will tell you everything you need to know.
Research the market
Timing is key with re-mortgaging and it’s widely recommended you start discussing your options with a mortgage advisor or broker around six months before you take the plunge.
Doing so should give you access to the most competitive rates in a climate where rates are frequently changing, and could protect you against rolling into a more expensive standard variable rate at the end of your current term.
You might be thinking about re-mortgaging simply to save money on your monthly repayments or you could be hoping to pay your mortgage back more quickly. Either way, although your current provider may well offer a competitive retention product, you’ll likely find a better deal if you shop around and switch lender.
So, always do your homework and compare the market. This will ensure you find the best re-mortgage option to meet your needs.
Do the maths
There’s lots to consider when re-mortgaging, not just your new repayment amount but what your property is now worth. And don’t be tempted to guess, an accurate valuation will tell you how much you can spend or save.
Bear in mind that you’ll inevitably be charged associated fees, whether it be set up fees or legal costs. Doing your sums will tell you if these costs make overall financial sense - before you make your final decision.
Prepare your paperwork
Since re-mortgaging is more or less identical to getting a new mortgage, there can be a lot of paperwork involved. Therefore, the quicker you can get your documents together, the quicker the whole process can be.
You’ll be subject to the same affordability tests as new buyers, so you’ll need proof of income and bank statements ready. Other documents you’ll be asked for include proof of address and some ID.
Evaluate your personal circumstances
Credit score Since the credit crunch, lenders have become much pickier when it comes to who they’ll lend to and will want a lot of information about your outgoings. Looking at your repayment history comes part and parcel with this, and they’ll want to see it’s at least ‘good’ and showing a clean record of handling debts. If you’ve got a patchy credit score, do what you can to improve it in advance of re-mortgaging and keep a close eye on your credit report to be sure.
Income These stricter mortgage rules also mean lenders are required to see evidence of your income. If your financial situation has changed since you took out your current mortgage – maybe you’ve gone self-employed or one of you has stopped working – new lenders may not be prepared to offer you a loan. In this case, it might be best to stay put.
Re-mortgage if your home’s value has increased
This is entirely your decision of course, but if your property’s value has risen rapidly since you took out your current mortgage, you could be in a lower loan-to-value band. This would make you eligible for much lower rates and could certainly be worth looking into.
Rest on your laurels
Don’t assume you’ll be able to secure the deal you’ve got your eye on. Getting any form of mortgage is tougher than ever in the current climate, and you mustn’t assume you’ll be successful because you’ve managed to a get a mortgage from a lender in the past.
Stick with your lender because it’s easier
As we already touched on, the mortgage world is a competitive one, and the reality is your current lender might not be the cheapest.
Re-mortgaging isn’t like swapping to a different mortgage rate with the same lender. Instead, it opens up new options with new lenders. Shopping around could really save you money and reduce the rate of interest on your monthly payments.
Forget about early repayment charges
If your current mortgage agreement has a large early repayment charge, it might not be worthwhile to re-mortgage before the end of the mortgage period.
Do your homework and find out how much it would cost you, and if it’s too expensive right now, do everything you can to be ready to move as soon as it’s financially viable.
Re-mortgage if your debt’s very small
Some lenders won’t offer mortgages at all below the £25,000 mark, but once your loan drops below around £50,000 it might worth seeking advice on your options to see if you can save any money.
Have a look what’s on offer, but the smaller your mortgage, the worse the impact of any fees. In a lot of cases, you might find you’re better off staying on the higher interest rate.
Re-mortgage if your home’s value has dropped
If you’re unlucky enough to be in a position where your property has decreased in value since you purchased it, you’re a victim of what’s called ‘evaporating equity’. This could hurt your finances and might even leave you in negative equity – where your debt is larger than your property’s value.
In this case, it could be worth looking into getting help from a mortgage broker to see what options are out there for you.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.