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Carolyn Dunion talks about the process of remortgaging.
What is remortgaging and what are my options?
The term remortgaging usually means reviewing the arrangements of somebody who already has a mortgage in place. For lots of different reasons, we might choose to move the mortgage to another lender. The other option is a product transfer, where you take a new product with your existing lender.
When is it a good time to remortgage?
We always recommend that clients start looking at the options when nearing the end of a product. Most people will be on a fixed rate or a tracker deal for a period of time – typically two, three or five years.
When that arrangement comes to an end, if people do nothing they go on to the lender’s variable rate. That may or may not be the right thing to do. We recommend not blindly going onto that variable rate, and instead having a conversation about the options.
We’ll look at your circumstances and present some choices. You might qualify for a better rate if your home’s gone up in value, or if interest rates have dropped since you initially took on the mortgage.
It might be that you want to avoid going on the variable rate, as it might be quite a bit higher. On a variable rate, if interest rates change you’ll have a lot of fluctuation in your monthly repayment – most people prefer to avoid this.
It’s also a very good time to review the amount of money that you have outstanding on your mortgage. Perhaps you’ve had a lump sum of cash or a bonus – you might want to consider making a large payment on the loan.
Some people consider remortgaging because they want to borrow more money. That could be for a wide range of things – home improvements like adding an extension or a new kitchen, or perhaps to consolidate debts.
There’s lots to consider about a debt consolidation mortgage so it’s worth speaking to an advisor. It’s not something you should do lightly. But it is something that people might consider at remortgaging time.
When is remortgaging not a good idea?
If you are currently in a product you’ll often have an early repayment charge. It means that while you can absolutely pay off the mortgage or move to another lender, your existing lender will charge you a fee, and sometimes that can be quite high.
Even though there might be a better rate on the market, when you factor in the early repayment charge, it’s not worthwhile switching. That’s something an advisor can help you with – to assess the costs.
Another thing that’s quite common is that a client has become self-employed and can no longer demonstrate their income in a way that a lender would accept. At this point remortgaging to another provider is unlikely to be an option, although it’s still always worth checking with your advisor.
At McKendry Dunion Financial we like to be mortgage advisors for the lifetime of our clients’ mortgages. We want you to check in with us and have that conversation. Whilst it might not be possible to move to a different lender, there’s usually something we can look at with your existing lender if a product is due to end.
There are some circumstances where we might not be able to do very much. If you’ve got very little equity in your property, or if you’ve had credit problems, for example. It’s quite common at this moment in time [podcast recorded in August 2023], for clients to be on wonderfully low rates because they took their mortgage out in a low interest rate economy.
The rates available in the market just now are just not comparable. We would never recommend that somebody move from a low rate to high rate if they can avoid it.
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Why remortgage at the end of a fixed rate deal? What happens if I don’t?
It does depend on the terms and conditions of your mortgage product and your advisor should have made that quite clear at the outset. For the majority of mortgages, once your introductory rate comes to an end on a specific date, you go onto the lender’s standard variable rate.
Being variable, that rate moves – lenders have the ability to set it at whatever they want. At the moment we’re seeing variable rates that are a lot higher than the available fixed rate deals.
So if you don’t do anything, you can find your mortgage payment goes up quite a bit. You’re also quite vulnerable because the rate can go up and down.
However, if a client’s actively looking to sell their property, they might well want to endure the variable rate to avoid any early repayment charges. If it’s only for a couple of months while they’re waiting for the sale to go through, that might be the right solution. Really, it’s best to get some advice at that point.
How do I improve my chances of getting a good remortgage?
It’s much the same as getting any mortgage. It helps massively if you’ve looked after your credit score and made sure that everything is up to date. Being able to demonstrate a good income is helpful, and the more equity you’ve got in your house, the more chance you have of qualifying for the better rates on the market.
What fees are associated with a remortgage?
Again, it depends on your circumstances. You might find that there will be a charge from the lender that would qualify you to get a lower interest rate. Again, your advisor can help you work out whether that’s worthwhile or whether you’re better to go for a product without a charge.
If you’re moving to a new lender, there will often be a fee. The lender will want to do a valuation of your property and there is a legal transaction in moving from one lender to another – but it’s very common for the lender to cover those costs.
Again, it’s worth speaking to an advisor to work out if those incentives are the right thing for you and or whether you could get a better deal without them.
How can a mortgage broker or adviser help if I do need to remortgage?
It’s vital to have a conversation about your specific circumstances so that we can compare all the options. We will look at what’s being offered by your existing lender and the wider market, as well as explore your plans for the future.
We can marry everything together and have an informed conversation. Our advisors can pull all that information together for you very quickly and knowledgeably. That then allows you to reflect and decide what’s the best option for you.
Think carefully before securing other debts against your home.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Your home may be repossessed if you do not keep up with your mortgage repayments.