MoneyMagpie

Nov 09

Remortgaging your home? How it works

Are you looking to remortgage your home? Well, you have come to the right place. It can be quite a hassle to remortgage, but this guide will hold your hand and take you through the process of remortgaging and what you need to know before you take this route.

 

What is Remortgaging?

Remortgaging is a process of switching your mortgage from one lender to another. This can be for better rates or if you need to borrow more money against your property. This is common in the UK. In fact, about a third of all home loans are remortgaged.

In this article, we’ll look at how remortgaging works and what steps you should take when remortgaging your home.

 

Reasons Why You Should Remortgage

There’re a number of reasons why a remortgage can be beneficial:

  • To get cheaper rates which in turn reduces your monthly installments
  • To lower the monthly payments by increasing the loan duration which means taking longer to repay the loan.
  • To lower the mortgage duration by getting cheaper deals while maintaining the same repayments meaning shorter journey to a mortgage-free life.
  • To get some equity from your property to use on other projects such as clearing debts.

Since remortgaging favours the borrower, lending institutions have in the recent past implemented stringent terms on remortgages. At the moment, a number of them may require you to maintain property equity levels of at least 15 to 20 percent.

If you didn’t make a huge deposit when taking out the mortgage, you might not have enough equity during remortgaging. Therefore, you’ll have to put up with your lender’s rates until they get better. If you decide to switch from one lender to another, do the following:

 

Get Your Documents Ready

Make sure you have at least three to six months of time prior to remortgaging. This period will help you to get your paperwork ready. This includes bank statements and the details of your current mortgage. If you’re in a tracker or variable rate mortgage, the rates might have gone down recently.

Therefore, you need to check what you used to pay before the rates started coming down and how much you can afford going forward.

 

Will it Cost You to Switch?

Before switching, check for any penalties such as the early redemption charge (ERC). These charges are common on capped, cashback, fixed and discounted deals. Also, look out for exit fees which are charged by the lender for shutting down your mortgage. All these fees can make a switch expensive.

 

Check for Loan Restrictions

Some lenders have hidden restriction on their loans. Some include paying standard variable rates even after the deal ends. Interest rates might go down, which isn’t a bad thing. However, the rates might go up and the lenders will increase their SVRs, making the deal quite expensive.

 

Research on a New Mortgage

This is where the hard work starts. You need to figure out the type of mortgage you want such as a variable, tracker or fixed rate mortgage. Afterwards, hunt for a favourable deal by contacting various lenders or use free comparison tools available from websites that compare these deals.

If you feel overwhelmed by the process, you could always contact a professional FCA regulated advisor such as The Mortgage Broker Ltd to help you find the best deal.

 

What Will It Cost You to Move?

Switching from one lender to another will come at a cost. Therefore, it’s important to find out exactly what that cost will be. For example, you might need to pay legal fees, arrangement/application fees as well as valuation fees among others.

 

Apply for the Mortgage

At this point, you can negotiate with the lender for better rates. If you get a better deal, go on and apply for the mortgage. However, you need to do this at least three months before the existing deal ends.

The reason for applying early is to give you ample time to look for a new deal should the lender turn you down. During the application process, the lender will request documents such as bank statements and a passport or other ID to verify your identity.

After you’ve provided all your details, wait for the lender to get back to you with a decision. This will be after you’ve paid all the fees required. Once the deal is closed, you’ll receive a completion statement.

 

Conclusion

There are different reasons why you would consider remortgaging your home. It could be to consolidate debts or to get cheaper rates. Whatever the reason, it’s vital for you to understand what the process of remortgaging is all about and the best advice of all is to speak to a professional.

 

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