Many homeowners will have existing mortgage deals for a fixed period of time such as two, three or five years. When the deal ends your mortgage will revert to the standard variable rate (SVR) which may be a much higher rate increasing the cost of your repayment.
A mortgage repayment will tend to be your largest monthly outgoing, so it is important to starting looking to remortgage before your existing deal ends. You could first ask your current lender to see what they can offer you.
With independent advice from London City Mortgages we can help you find a lower rate than the SVR including fixed rate and tracker rate mortgages and with a term that meets your needs. We can help you find the best mortgage deal and make the online remortgage process easy for you.
Why would you remortgage?
Your property is likely to be your largest asset and there are many benefits of selecting a new mortgage to meet your current needs.
If you have been a homeowner for short time such as five years or less you may wish to reduce the monthly repayment costs by remortgaging or move to a fixed rate mortgage to have certainty of the monthly payments.
If you have owned your property for ten or twenty years you may like the idea of raising equity by remortgaging. You could use this to improve your home such as adding a new kitchen, bathroom or extension which could also increase the value of your home. Here are some of the benefits of remortgaging:
| Benefits of remortgaging your home |
|---|
| Reduce your monthly repayment costs |
| Change to a fixed rate mortgage so your monthly payments are certain |
| Select a shorter or longer term for your mortgage |
| Raise capital for home improvements |
| Capital raising for a deposit on a buy-to-let property |
| Select a mortgage that allows unlimited overpayments |
If your circumstances have changed you can remortgage to allow greater flexibility such as selecting a shorter or longer term, making greater overpayments without penalty.
Finding the right remortgage
You may find since you bought your property the price has increased and this will improve your loan to value (LTV). As the LTV reduces and the amount of equity increases lenders are willing to offer you better interest rate deals.
As an example, if you bought your home for £300,000 with a deposit of £15,000 or 5% your loan to value would be 95% and let’s say your mortgage rate at the time was 4.49%.
If your property value increases from £300,000 to £360,000 your equity in the property will be £75,000 or 20% reducing your LTV to only 80% and you are seen as a lower risk borrower by the lenders.
The interest rate you pay will decrease considerably with the lower LTV and by remortgaging you could be offered a rate 2.5% lower than your existing rate saving you a significant amount in interest over the term of your next mortgage.
There are a number of mortgage types to consider are as follows:
| Type of mortgages you can consider |
|
|---|---|
| Standard variable mortgage | Discounted mortgage |
| Tracker mortgage | Fixed rate mortgage |
| Capped mortgage | Offset mortgage |
If you are on an interest only mortgage you may find you will have to change to a repayment mortgage as lenders have changed their criteria. Many lenders would require you to have a high level of earnings a high level of equity in your property before offering an interest only mortgage.
Reducing your mortgage costs
You can reduce the costs with some planning by avoiding lender charges and reducing the total interest you pay over the lifetime of the mortgage.
Most fixed, discount or tracker mortgages would require you to pay an early repayment charge if you move to another mortgage lender before the end of your special deal and this charge could be as much as 3% of the mortgage.
If you are still on a special deal you should check the terms & conditions for your lender to see if a charge applies. In some cases, such as a tracker mortgage, you may be free to move without a charge.
Ideally you would have come to the end of any introductory offer and have no repayment charge to pay for moving to a new lender. It could be worth looking at the whole mortgage market again to find the best deal for you.
There are a number of cost advantages of remortgaging such as staying away from the standard variable rate (SVR) which could be high such as 4% to 5% and a cost worth avoiding.
You may also want to change the type of mortgage if you started with a discounted variable mortgage two or three years ago. With interest rates at an all time low level there is always the risk interest rates may increase in the future and you can avoid the cost of rising mortgage repayments with a fixed rate mortgage.
You also need to compare fees and interest. The new mortgage deal may have an arrangement fee of £500 to £1,500 so you need to compare this with a deal that has no fee. The application fee can be added to the loan so you need to take this into account when comparing the costs of remortgaging.
You will find if there is no fee charged the interest rate will be higher, so over two or three years you need to work out if paying more interest cost more or less than the higher fee option.
A shorter term deal such as two or three years will have a lower interest rate than longer term deals such as five or ten years. You need to take into account the interest rate for the mortgage and compare the total costs over the introductory offer period.
Making overpayments
Your mortgage will have a term of 25 to 40 years and over this time period the amount of interest you will pay and really add up. If you can make overpayments in addition to your mortgage repayments you will significantly reduce the interest cost of your mortgage.
For example, if you buy a property for £210,526 with a £10,526 deposit your mortgage will be £200,000. The most popular term is 25 years and if you pay an average interest rate of 2.95% the cost is £943.23 per month.
Over 25 years you would pay £82,968 in interest and if you made an overpayment of £200 per month this would reduce to £61,786 or a saving of £21,182. Furthermore you would fully repay the mortgage after 19 years and 1 month.
Most mortgages allow you to overpay the outstanding value of your mortgage by up to 10% each year without penalty. Some may allow you to overpay an unlimited amount such as some tracker deals without penalty.
Applying for your remortgage
The application process for a remortgage for a house move is very similar to any other application. If you are applying through London City Mortgages the application can be completed for any mortgage lender online 24/7 on a pc, tablet or phone. You can upload any other documentation direct to your application such as payslips, bank statements, proof if identity and address.
Unlike buying for the first time, remortgage buyers have an advantage as you are likely to have more equity in the property and a history or regularly paying your mortgage which reduces the risk for any new lender.
Our advisers can check the maximum amount you can borrow and search the whole market for the lender offering best mortgage deal for your circumstances.
Once the lender has received your application they will conduct a credit and affordability check before making an offer for the mortgage. Remember also that the lender would also need a valuation for the new property and often this is paid by the lender.