So you’ve got a mortgage and it’s going to take around 25 years to pay it back. That’s the end of it, right? Well, it could be (except for the 25 years of paying it back, with interest, of course), but that’s only if you don’t mind missing out on some money-saving opportunities.
Remortgaging means getting a new mortgage to replace your old one. This can potentially save you a lot of money – a lower mortgage rate over the years will add up. There are many reasons to do it, but also some considerations you should think over before agreeing to a deal. We offer you our top three considerations when remortgaging!
Loan-to-value percentage (LTV)
Your property was probably the most expensive thing you’ve ever spent money on when you got it. But guess what? It’s probably worth even more now, despite recent events. Find out how much your property is worth before you start thinking about remortgaging.
When you first bought your house you may not have been able to get an attractive mortgage deal due to your loan-to-value percentage. A loan-to-value percentage is the amount you borrow compared to the value of the property. When you got your original loan, you may have only been able to put up 10% of the value of your house yourself and required the rest from the loan.
This LTV percentage would have made it difficult to qualify for better value mortgage deals. If you have been repaying your loan, then the outstanding mortgage should have dropped while the value of the house (i.e. your equity) has increased. This means if you remortgage, the LTV percentage could be more in your favour.
For example: when you first got your mortgage, the value of the house was 300,000. The mortgage amount came to 270,000, so the LTV figure was 90%. Now your house could be worth 350,000, with a mortgage amount left to pay of 260,000. This would mean your remortgage LTV percentage would be 74%, which can open up many more options for your remortgage. Our handy remortgage calculator might be able to help!
Early repayment charges
Before you start thinking about how obvious it is to remortgage, remember that lenders tend to be savvy to this. They will usually have an early repayment charge in place, which is a fine payable if you pay back your mortgage before the arranged time, especially if you have a fixed rate product. This can be very expensive, especially if you haven’t had the loan for long.
It will typically be between one and five percent of the overall debt being paid back. Lenders say that it is to cover their costs. Be aware that they may also ask for any rewards or incentives to be paid back as well, such as cashback or legal fees. There might also be an exit fee – charged regardless of whether or not you are paying back early. This is typically £75 – £300.
There are mortgage deals that won’t require you to pay a repayment charge, but they may not be the most suitable deal for you, especially if you want some kind of security. Be sure to properly consider APR and monthly mortgage repayments into your calculations.
Know your mortgage dealer
If you bought your house in 2001, the Bank of England Base Rate in February that year was 6%. Compare that to July 2016 where the interest rate is 0.5% (at time of writing). Before June 2016, mortgage demand had grown rapidly once more and the number of offers available could be overwhelming.
With so many products from so many lenders available it can be daunting to narrow down a specific deal and mortgage offers from different lenders might start looking very similar. But remember: lenders are not the same.
Aside from the complex calculations, you need to make in order to establish how much money – if any – you will be saving with a new deal, you also need to make sure that the company works for you, personally. For instance, do they have a strong online presence? Some lenders have no way to access your mortgage details and payments online, which can be troublesome if there is no branch you can visit.
What are their customer service options? Most importantly, do you feel comfortable with them? It’s a huge investment going forward with a remortgage and you need to feel like you’re in good hands.
Before you take any new deal, however, talk to your current provider. Even if what they offer as advertised is not as good a deal as that which you have found, who knows? They might just fight for your custom.
Of course, there are many considerations when it comes to any kind of mortgage – too many for a comprehensive explanation in one blog. Here we have included the most important factors to consider, but to get the clearest, most honest and informed advice, you can talk to a mortgage advisor or broker.
We would be glad to help you find the best deal for your property, and save you a lot of money over the years! Get in touch – we look forward to hearing from you!