Essential Considerations When Remortgaging
Once you've chosen your the remortgage product there a still a few things you should consider.
- Find out if there are there any extended early repayment charges. If you go for a fixed rate or term, such as three years fixed rate or a discount for two years, then you'll need to find out what happens afterwards. Many accept that they will be penalised for coming out of the deal early in the initial stages, and a lot of lenders will then continue to have a repayment fee later in the term if you back out. Hence, you should definitely avoid these extended offers.
- You need to find out whether the money you receive dependent on the value of my home. Most lenders will generally only let you borrow a certain percentage of the properties value. This is known as the Loan to Value ratio (LTV) and a typical LTV is around 75%. You'll usually get the best rates if you can get down to 60% or less and although this might not sound like much it can have a huge impact on people. House prices are falling at the moment and as a result people's LTV will have risen dramatically. For example, if you bought a £400,000 home a year ago and got a £300,000 mortgage that's a 75% LTV. However, assume the house price falls by 15% annually, this means the home is now worth £340,000, and that's a 88% LTV with your current mortgage.
- You need to check whether the Mortgage product is actually available in a remortgage situation. This may seems obvious, but not all deals are- so you must always check.
- You must check that you meet the lenders criteria. Check if you meet all the requirements such as employment status and minimum salary and if your circumstances have changed since you took out your mortgage be aware that you might not qualify for a new one. Try to follow all the steps on www.moneysavingexpert.com/creditrating to raise your credit score.
- Be sure to find out whether overpay or make underpayments? If this is why you want to change mortgages, make sure you have a mortgage that allows you to do this sort of thing. A lot of mortgages will restrict the amount that you can overpay to a maximum of around £500 a month or 10% of the remaining value per year. You can be penalised for exceeding these limits, but some lenders will allow you to have the extra money knocked off your debt to calculate a new interest rate. Perhaps you want a payment holiday? Some mortgages let you do this, but remember that the amount you don't pay for one or two months will then be recalculated against your remaining balance and will mean your repayments go up later to cover it.
- Be certain to find out whether the lender charges interest daily. This will have a great impact on the amount that you pay back and when you have daily interest the amount you owe is recalculated every time you make a payment. When you owe less money, you pay less interest, so with annual interest you don't get the benefit of the 12 months of paying until the end. Even if your new rate is better, if the lender charges interest annually it could make you a lot worse off.
- Find out what happens if you move house during the mortgage term. A lot of mortgages these days are portable, so when you move house you don't need to move deals. However, if you need to extend your loan for a new house it's worth looking into remortgaging- but be clear about if this is possible or not.