Remortgage
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Remortgage
Joe Eden talks us through remortgaging.
What is remortgaging and what are my options?
A remortgage is very often used when your fixed rate comes to an end. If you’ve done a two-year fixed deal and it’s due to expire in the next month or two, you’d usually look at remortgaging to a new provider.
Another scenario is where you want to borrow more money, to pay for a new kitchen or a home extension. We could look at remortgaging to extract more capital out of your home.
Essentially a remortgage is switching from one lender to another, to either gain a better rate or to borrow more money.
When is it a good time to remortgage?
A good time is certainly when you get to the end of your fixed rate. In that situation, it’s helpful to start looking at your options three to six months before that expires.
While we say ‘remortgage’, there is also something else we explore every time, which is called a product transfer. You can either remortgage to a new lender or take a product transfer or ‘rate switch’ – which means you stay with your existing lender.
The best time to explore one of those options is at the end of your fixed rate – although I’m saying that with hesitancy because we’re recording in December 2022 and we’ve had a couple of years of mortgage madness. We’ve recently had clients remortgage before their fixed rate expired, purely because interest rates are going up so fast. A lot of clients were worried about waiting for their term to expire in case mortgage rates become too high.
The other key time is if you want to extract some money out of your property. If you’ve got a lot of equity in your home you could take some money out for a new kitchen, an extension, a loft conversion etc. Or you might be looking to pull some money out to buy an investment property. There’s lots of reasons you might consider that – they’re all valid.
If you sit down with a broker we start by looking at what it will cost to leave your existing lender. It could be worth taking a further advance to get that extra money, which is borrowing an extra lump of money on top of your existing mortgage. It means you don’t pay a penalty to leave your lender.
Another common reason to borrow some more money is for debt consolidation. You can use your equity to pay off loans or credit cards. You could also remortgage to change the term of the mortgage or have a longer fixed rate. But it’s usually more financially beneficial to wait until the end of the mortgage term.
When is remortgaging not a good idea?
If you’ve got a large penalty to leave your existing lender, that contradicts everything I’ve just said. That’s probably the main reason we would not recommend a remortgage. If you’re with a lender that will charge £10,000 for you to leave, we would always weigh up whether it’s worthwhile.
You might be in a stressful or emotional situation where you just want the money to solve a problem. We’d always show you the financials to explain why it’s not worth it.
It’s usually when you’re stuck on a fixed rate product with a particular lender that the fees are high to exit. If you did want to take some more capital out you can look at a further advance. You can go back to your existing lender and borrow a lump sum, subject to affordability and criteria.
There are also second charge mortgages, which is probably a separate topic, but essentially this involves going to a new lender alongside your existing provider for the capital to do what you need to do.
Speak To an Expert
We’ll have an initial five minute chat to address any burning questions, then we’ll set up a Zoom call or a meeting and spend an hour or so going through your affordability and any advice that we can offer at that stage.
That’s entirely free. No matter what type of finance we do, whether it’s residential, Buy to Let, bridging finance, we don’t charge a penny until we physically apply for a product for you.
Why remortgage at the end of a fixed rate deal? What happens if I don’t?
If you don’t do anything, the following month your mortgage interest rate would rise to what’s called the lender’s standard variable rate which is usually higher.
This is so relevant in the current market. Historically, if you had a fixed rate at 2%, when you reached the end of that fixed rate period over the last five or six years, lenders had interest rates of 4% to 6%, or more. You would go from your 2% fixed rate to the standard variable of, say 5%. Your next monthly payment will be huge.
But in recent months we’ve seen interest rates go up pretty quickly. For a few clients we’ve worked with, because fixed rates reached a high point, just doing nothing was more beneficial for the short term.
It’s all about the market at any given time. Typically a fixed rate is cheaper than the variable rate that you fall onto if you do nothing.
How do I improve my chances of getting a good remortgage?
If you think you’re going to be buying or moving home in three to six months’ time, have a chat with a broker and your local estate agent.
A key thing that usually comes up is to make sure you’re registered on the electoral roll. So many people think they’re registered and they’re not – if you don’t respond to a letter you could be removed. Also, make sure you keep up repayments on any debts to make sure your credit profile stays strong.
If you’ve got some cash, pay off the debt. You’ll save on interest and your credit score is linked to how much debt you’ve got. Do a credit report early on. Checkmyfile.com is really good because it checks Equifax, Transunion and Experian – all three of them in one. You get a 30 day free trial and that will give you a clear picture of what your credit profile looks like.
That way you can catch a bad debt or missed payment or CCJ that you didn’t know about before you fall in love with a dream property.
What fees are associated with a remortgage?
Most remortgages come with free valuation and free legals. If you’re switching from one lender to another, the new lender would want to do a survey on the property to make sure it’s worth what we’re telling them it is.
A solicitor deals with the transfer from one lender to the other and a lot of lenders will give you both those services for free. Some lenders have one product at one rate with free valuation and free legals, and another one where valuation and legal services are chargeable, depending on how much you’re borrowing and your circumstances. A broker would be able to calculate the best option for you.
Some brokers charge fees – and we charge an application fee but generally it’s possible to remortgage without any fees from the lender.
How can a mortgage broker help if I need to remortgage?
The starting point is a quick conversation to explore your objectives and what’s possible. We’d then have a follow on call or meeting. We meet clients face-to-face in Essex or London, and a lot of our business is done via Zoom now. We would spend 45 minutes to an hour going through your documents and your circumstances to explore the best options for you.
We don’t charge anything upfront, you only pay when we apply for the mortgage. If you spend an hour with a mortgage broker you can walk away from that meeting knowing what everything is going to cost you.
It’s definitely worth having a chat with a mortgage broker either formally or informally to explore your options. We’ll demonstrate how much you could borrow, what the costs are going to be and give you advice along the way.
