If you took out a mortgage when buying your first home, did you know it’s likely it will ‘mature’ after a few years?
This means that the initial deal you got on the mortgage will expire, and you could end up paying more unless you do something, such as remortgage your property. But as someone living in your own property for the first time, do you fully understand what remortgaging means, the process itself, and whether or not you need to do it?
In this short guide, we’ll answer these questions for you.
What is remortgaging?
If you own a property, you may be able to borrow money against it, using your home as collateral, or replace your current mortgage with one offering a better interest rate. Remortgages account for around a third of mortgages in the UK and can yield big savings for homeowners. Think of it as shopping around for the best deal, exactly as you would with other expenses such as insurance policies and mobile phone contracts, rather than sticking with the same one out of habit.
Your current mortgage is ending
Many homeowners have tracker, discount or fixed rate mortgages that are limited to a certain period of time, and when that time has elapsed, you’ll be put on what is known as a standard variable rate-mortgage (SVR – as it’s sometimes known).
Just like your broadband provider writing to tell you when your introductory offer is about to expire and your monthly bills will go up, your lender will do the same and tell you you’ll be moved to an SVR. Your mortgage broker will probably be in touch at the same time to guide you through the options.
They’ll have the right professional experience,extensive industry knowledge and the ability to search the entire mortgage market. That means you can be confident that any deal that’s recommended to you genuinely suits you and your circumstances, and that the advice you’re being given has been offered with your best interests in mind.
The remortgage process
With great support from your broker the remortgage process can be straightforward and simple.
Consider your options
Choosing the right option can be daunting,particularly if you’re not used to making these types of decisions, so the support of yourmortgage broker can be invaluable in steering you the right way.
Checking you’re eligible for a new mortgage
Your broker will want to see some financial details to establish which lender would be the right one for your circumstances. This could include credit card statements, bank statements, payslips and utility bills.
Decision in principle
Once your broker has found the right lender foryou, they will complete a Decision in Principle (DIP) with the lender and they’ll contact you to let you know the outcome. Be aware that this isn’t a formal mortgage offer, but more of a guide of how much you could borrow.
Apply for your mortgage
You should now be at the point where your broker can apply for a mortgage on your behalf. If you’re moving to a new provider, your broker will pass on your documents the new lender needs to process the mortgage application. Your broker will keep you updated with progress as well.
Your house is valued
The mortgage lender will value your property to establish that it’s worth the amount you want to borrow and that there’s enough equity for you to borrow the amount you want.
Speak to a solicitor or conveyancer
If you decide to move to a new lender, a Solicitor or Conveyancer needs to be brought in, so they can prepare any new documentation that’s needed. Many lenders offer free legals for remortgages, which means you can change mortgage lenders without going through the added stress or expense of finding a Solicitor.
Mortgage offer issued
Once your lender is happy with the valuation and paperwork provided you, your broker and your Solicitor or Conveyancer will be sent a formal mortgage offer.
This will contain all the details and conditions of your mortgage, so it’s worth going through it carefully before accepting and raising any issues if you have them.
New mortgage completes
The details of your new mortgage will be registered with the Land Registry by your Solicitor or Conveyancer and any funds raised will be sent directly to you.
Reasons to consider a remortgage
Your wish to borrow more money
If you need money to make home improvements or pay to pay off debts for example, you might ask to borrow money from your mortgage lender, on top of what you currently owe. But if they say no or aren’t offering very favourable terms, what can you do?
Remortgaging could be the solution, as you may be able to get the money at a better rate. But be aware that a lender may ask why you need the money and might ask to see proof of how it has been spent.
You want certainty over interest rates
Interest rates can go up and down, and that can have a big impact on the size of your mortgage payments. So, if you’re worried about changing interest rates at a time of economic volatility, changing to a deal that offers fixed rates might be an appealing option.
The value of your property hasgone up
If your home is worth considerably moretoday than it was when you bought it, you could be eligible for lower rates, in which case remortgaging could be an option to look at.
Your mortgage lender won’t let you overpay
Many homeowners may want to pay more on their mortgage so they can pay it off sooner or reduce the amount of interest they have to pay. This is common among people who may have seen a change in their circumstances, such as moving into a better paid job. But some mortgages don’t give you the option of overpaying, so remortgaging could offer a solution to this.
How much money could I save by remortgaging?
This depends on your personal situation, but calculations by Yorkshire Building Society often suggest that thanks to increased house prices and often lower available mortgage rates, a borrower whose mortgage is maturing for the first time could save money each month by remortgaging.
Reductions in your monthly mortgage repayments could make a big difference to your life, but of course, whether you see this money may depend on getting the right professional advice.”
Remortgaging for the reasons listed above won’t automatically work out better for you financially.
You could be hit with costs such as exit fees or early repayment charges if you make changes to your current arrangement, which means you don’t actually end up saving anything by switching to a new deal.
That’s why getting advice from a mortgage broker could help. They look at all the different variables with an objective, experienced eye and give you the right advice for your situation.
If you have any questions or want more details on any step in the remortgage process, speak to your mortgage broker. We’re here to work with you and advise you, so you can make the right financial decisions.