With so many great long term low interest deals around the benefits of remortgaging are clear. You can shorten the length of your mortgage, pay less each month, or borrow more and pay the same. But remortgaging changed, so you need to make sure the deal is right for you.
Current low mortgage rates mean that millions of borrowers are paying more than they need and would be better off switching to another deal.
The most common time to remortgage is when the fixed or introductory rate on your mortgage ends. At this point you will usually be moved your lender’s standard variable rate (SVR). This tends to be higher than rates available on new mortgage deals, which is why so many people switch at this point.
But although remortgaging means saving money, some people don’t do it.
Why not remortgage?
It’s been harder to get a mortgage because of the credit crunch. Borrowers have had to put down larger deposits due to the shortage of funds. Banks and building societies have been choosier about who they will lend to. As a result, many people found they simply couldn’t remortgage when their introductory rate ended.
At times after the credit crunch many borrowers have actually been better off staying put because their lender’s SVR was lower than the rates available on new mortgage products.
But with initial tracker rate mortgages at less than 1.5% and the fixed rate deals below 2%, remortgaging is becoming an attractive option once again. Rates are unlikely to get much lower than they are now.
Fixed vs variable
So fixed or a tracker rate? You pay a higher rate if you opt to fix your mortgage rate as opposed to going for a tracker, but you’ll know exactly what your monthly repayments will be for the next few years.
A tracker may cost less, but it will vary with bank rate – and with the rate still at 0.5% it’s tempting to think the only way it can go is up, and the only question is when. If you are worried that your mortgage payments may rise and become unaffordable, go for the security of a fix.
But the mortgage with the lowest rate may not actually be the cheapest deal. Look at the arrangement fees, which have shot up in recent years. It may actually work out cheaper to pay a higher rate of interest if the set-up costs are The key is to work out the total you pay in monthly payments and fees over your fixed term.
Remember there will be legal and valuation costs These will be lower than if you were buying a house but your new lender will require a valuation survey and a solicitor will need to do the paperwork. Some mortgage products include a free valuation and legal work – so it may work out cheaper than to go for a lower-rate deal without the extras.
The equity you have built in your home can really make a difference to the competitiveness of the mortgages you’ll qualify for. To get the best rates you need equity of 25% or more – although if you’ve been in your home for a while the chances are the increase in value will have helped you.
Early repayment charge
Watch out for the ERC – the Early Repayment Charge. Most providers will charge you for remortgaging in the introductory period. With a two-year fix or tracker for example, you will probably be charged a penalty to get out of the deal during the first two years. Where it becomes more of a problem is with longer term deals such as 10-year fixes, where you can find you have to pay thousands in penalties to take advantage of better deals.
If you move your mortgager, you will be charged an exit fee by your current lender. Costs vary but should be under £1000. The fee will be stated on your original mortgage offer and a clampdown by the Financial Services Authority a few years ago means that lenders can’t alter it.
With all these factors, getting the best remortgage deal can be a nightmare, and new income requirements may make it harder to borrow at the same levels you did when you last arranged your mortgage. The best solution is to get professional help.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.