You might be very happy with your house, but are you happy with your mortgage? It is possible that you have a good deal, but for others, it might be that you are paying more than you need to.
Remortgaging is the process of coming off your existing mortgage agreement, and getting a new deal (perhaps with another lender) which offers you a lower monthly payment. The idea is to get a new mortgage where the savings outweigh the costs of switching over.
Naturally, this guide will, therefore, be less relevant to first-time buyers and more helpful for people looking to either move home or move lender. Here, we’ll be sharing 5 crucial tips to consider when remortgaging. It’s important to note, however, that this content should not be taken as financial advice. It is for information and inspiration purposes only.
To receive regulated, personalised financial advice we recommend that you consult an independent financial adviser, such as one of ours here in Sale, Cheshire.
#1 Consider the “Why”
There are many reasons why you might want to remortgage, and it’s important to have yours firmly in your mind before getting started. For most people, the primary goal will be to put more money in your pocket rather than those of your bank.
It’s quite possible that your mortgage does not suit your needs or circumstances anymore. For instance, perhaps you’ve had a significant pay rise and want to overpay on your mortgage (in order to reduce the mortgage term). However, perhaps your existing deal does not allow you to do this, and so you want to find something with more flexibility.
Or, perhaps you simply want to borrow more money but your current lender is either refusing, or they are offering you a poor deal.
It might be, however, that your reasons for wanting to remortgage need re-examining. For instance, if you are on a very good deal already then it makes little sense to go through the trouble and costs involved with switching. There are also sad cases where people are locked into bad mortgage deals with terrible early repayment charges, meaning you are probably better off simply waiting out the incentive period.
#2 Check Credit Score & Equity
There is little sense in starting out on the remortgaging process if you are in negative equity, or if you have a poor credit score. In the latter case, you might be prohibited from remortgaging at all if you have missed a number of loan payments or utility bills.
In the former case, “negative equity” refers to the unfortunate case where your house has declined in value, to the point where its value is lower than the figure you owe on your mortgage. You might be able to ask your existing lender for improved mortgage terms in these circumstances, but for most people, it is likely to be more sensible to avoid remortgaging for now.
#3 Prepare Your “Deposit”
Remember, “equity” is similar to having a deposit for a house. So if you are in strong, positive equity on your current property and are thinking about remortgaging, this is a good start.
You will need a good amount of equity to have a chance of getting a good mortgage deal. At the minimum, you will likely need 5% of the property’s value. To get the good deals you will probably need at least 20%, and to get great you will likely need around 40%.
#4 Scrutinise Your Finances
When it does eventually come to the point of approaching different lenders for remortgage deals, you will need to discuss your finances with them. Gone are the days of “easy lending”, where it used to be relatively easy to get a mortgage. These days, your income and expenditure are carefully analysed by lenders to ensure you can keep up with your mortgage payments.
Indeed, most will “stress test” your finances to make sure you’d be able to afford the payments even in the event of a significant rise in interest rates (e.g. 6-7%). It’s a good idea, therefore, to go over your bank statements with a fine toothcomb and to look at them through the eyes of prospective lenders. Are there any areas of unnecessary spending which you could take out, for instance? Are there any debt payments which could be cleared? Are you in your overdraft?
Self-employed people and contract workers will, unfortunately, have more hurdles to cross when it comes to remortgaging. Make things as easy for yourself as possible by preparing your business accounts, ready for examination by the lender.
#5 Think About the “Deal Type”
Broadly speaking, there are two types of mortgages which you could switch to: a Standard Variable Rate (SVR) mortgage or a fixed-rate mortgage. Both come with their respective advantages and disadvantages, and it’s important to consider these in light of your current financial situation and goals when you’re thinking about remortgaging.
In general, fixed-rate mortgages have the advantages of offering predictable monthly payments over the term of the deal (e.g. 5 years). On the other hand, if you later want to withdraw from the deal early to switch then you will likely face penalties.
SVR mortgages are attractive to people who think they might want to switch again in the near future, as they tend not to bring early repayment charges. However, they do bring a degree of uncertainty as your lender could raise your monthly payments down the line.
This is a really crucial part of remortgage planning, and we recommend that you speak with an experienced financial adviser and mortgage broker if you are thinking about this option. Get in touch today to speak with a member of our team here at Suttons.