When can I remortgage my property and how much can I borrow?
Around a third of all home loans made in the UK are actually remortgages but do you know what’s involved and whether it’s right for you?
SWITCHING your mortgage might seem like a good way to slash costs but there are risks involved in remortgaging your property.
Around a third of all home loans made in the UK are actually remortgages but do you know what’s involved and whether it’s right for you? We explain all.
What is a remortgage?
According to MoneySavingExpert.com, a remortgage is when you take out a new mortgage on a property you already own.
This can be done either to replace your existing mortgage or to borrow money against your property.
The main reason people remortgage is to save money but it’s important to shop around.
When should you remortgage?
Most people remortgage when their current deal is about to end and their lender puts them on a standard variable rate (SVR).
It is best to start looking around for a cheaper rate around 14 weeks before your current one comes to an end.
But there are other reasons to remortgage:
- The value of your home has gone up a lot since you took out your mortgage, you may find you’re in a lower loan-to-value band and eligible for lower rates.
- You’re worried about interest rates going up – for example if it’s the Bank of England base rate that is predicted to go up, this may affect your mortgage payments directly, depending on the type of mortgage you have.
- You want to overpay after coming into some cash but your lender won’t let you. A remortgage will allow you to reduce the loan size and potentially get a cheaper rate as a result but watch out for any repayment charges or exit fees.
- You want to switch from interest-only to repayment mortgage. You probably won’t need to remortgage to do so speak to your lender.
- You want to borrow more but your lender has said no or their terms aren’t great. Remortgaging to a new lender might enable you to raise money cheaply on low rates but remember to take fees into accounts.
- You want a better rate. Being tied into an initial deal means you may have to pay an early repayment charge which can be up to five per cent of your outstanding loan and there may be an exit fee when you repay any mortgage.
- You want a more flexible mortgage.
How much can I borrow?
It varies between person to person but it is always better to shop around for the best deal.
Comparison websites are great but make sure you use more than one before making a decision.
How do you remortgage?
Remortgaging can save you thousands of pounds. Here’s what you need to think about.
Start early -Don’t leave it until the end of your current mortgage to see what’s available.
Most lenders will let you set up your next deal at least three months in advance, according to MoneySuperMarket. You can use a price comparison site to look for deals yourself, or a mortgage broker, who will not only find the best deal for your circumstances but will guide you through the entire process.
Work out what you need – The lower you loan-to-value (LTV), the better deals will be available to you. Work it out by dividing your outstanding mortgage by your property’s current value.
Check fees – Product fees can eat into any potential saving you could make by remortgaging, so make sure you know how much you’ll have to pay.
Avoid penalties – Many deals have early repayment penalties which could cost thousands of pounds. To avoid this, start your new mortgage agreement from the day after the penalty ends.
Approach you current lender – Once you’ve found a new deal that can save you money, it’s worth speaking to you current lender to see if they can match it or offer you somthing even better. If they can’t, you or your mortgage advisor can submit an applciation to the new provider, who will carry out the necessary credit and affordability checks.