Key things to consider when you remortgage
The mortgage market in the UK can be confusing, especially when it is time to remortgage. As part of a study published in March 2019, the FCA reported that 30% of consumers could have found cheaper mortgage deals and were on average paying £550 pounds more than they should. To help you become more informed about the process, here are 8 things to consider next time your looking to switch mortgage deals.
1. Mortgage deal type – you will need to decide whether you would like a repayment mortgage or an interest only product. For repayment mortgages you pay off the capital and interest, whilst on an interest only mortgage you don’t pay off any of the original loan. In addition, there are different mortgage types e.g. fixed, tracker, discount, offset, flexible mortgages etc. that are available to you.
2. Length of the deal period – consider how long you want to be tied to your mortgage deal for. With longer term deals, a lot can change in terms of your personal circumstances, your financial goals and the deals that are available in the market. If you are tied for too long and you decide you want to leave, then you will be charged a penalty to get out of the deal.
3. Moving home – if you are planning to move home in the next few years, then it may make sense for you to get a mortgage that allows you to easily port your mortgage to your new property without having to pay fees.
4. Increase your deposit – the more equity you have in your home, the better deals you are likely to have access to if you drop below the lenders LTV thresholds. When you are remortgaging, it is a good time to consider whether you want to increase your deposit to help improve your LTV and benefit from having to pay less interest on the loan.
5. Early repayment charges – be aware of any early repayment charges that you may be required to pay as a result of switching your mortgage. If you are unsure, you can find out by asking your lender, checking your mortgage offer document or looking online.
6. Fees – there are a number of fees you can be subject to when remortgaging, either enforced by the lender itself or by a mortgage broker should you decide to use an intermediary.
If you use a mortgage broker, there are plenty of advisors in the market who will provide you with free advice, as they get paid a commission by the lender for arranging the mortgage.
Lenders tend to have arrangement fees, to be able to get on a new product. So whilst you may have a product with a lower interest rate, once you take into consideration the fees, you might be better off selecting another deal or sticking to your existing product. Other fees you could be subject to include valuation and legal fees. Again, there are products that come without fees, so do take this into consideration when selecting your product. Your lender may also charge an exit fee to cover administration costs of closing your mortgage account.
7. Loan amount – you can decide whether you want to borrow the same amount, more or less when you’re remortgaging. You may want to borrow more for debt consolidation or home improvements. You may decide to borrow less if you want to save money by paying off your mortgage more quickly. If your mortgage is £50,000 or less, it may not make sense to switch lenders as savings might not outweigh the fees. Some lenders will not take on mortgages below £25,000.
8. Credit rating – lenders run credit checks to make sure you can afford the mortgage. If you have recently missed a payment on your credit card, mortgage, utility or mobile phone bill, it may make it more difficult for you to switch to a better deal.
