Remortgaging – Your Guide to What You Need to Know
Today we will be talking about Remortgaging with Lisa Harrison. Lisa has been working as a Mortgage Adviser since she was in her late teens and been within the industry for 23 years. She has worked in Banks and Buildings societies and run her own Mortgage Broker company. She joined CS Mortgage Solutions when the company was founded and is here today to talk to us about remortgages.
What is Remortgaging?
Remortgaging is basically reviewing your finances secured against your house. It usually involves switching lenders for a better rate. Sometimes it can be that the house currently doesn’t have a mortgage (incumbent property) and you just want to actually raise some of the capital out of that property, that would also be classed as a remortgage. It may involve staying with the existing lender for a different mortgage product (or rate), or switching to a new lender.
Why would you Remortgage?
For most people they have already got a mortgage and that’s the existing deal is coming to an end. They look to remortgage to make sure they remain on a lower interest rate. Ideally you would review your remortgage options about six months before the renewal is due so that you do end up going onto a standard variable rate (SVR) mortgage.
What is Standard Variable Rate (SVR)?
So if you have a fixed rate for a set period of time (Usually two to five years) you know how much your monthly payments will be. At the end of that period you would be put on the standard variable rate. Standard variable rates are set by the banks and building societies, the lenders themselves, they can vary across the board. Not all lenders charge the same standard variable rate, but they do tend to be a lot more than the fixed rate deals.
In essence, your monthly payment will jump up quite considerably. People start to panic at that point, which is why we like to do the renewals in plenty of time so that we don’t get to that point. Its best to have a new deal in place, ready to switch over the day after the deal is ending.
It also mitigates the uncertainty. With a fixed deal you know what your monthly payments are. You know what they’ve been for the last two years, five years, 10 years. You go into a SVR it’s going to increase. The Standard Variable Rate can fluctuate as well, which is not good from a planning perspective.
We mention six months as a guide because once you have your mortgage offer in place it is valid for six months. So the solicitor just knows to then revisit it like the week before expiry. They’ll request the funds from the new lender in time to complete the day after the existing deal within a day or two with the existing deal ending. So you’re not actually with the standard variable rate for any period of time and wasting a lot of money.
Reviewing your Mortgage
You can review your mortgage at any time. We can sit down and do a review and obviously discuss what your plans are, whether you’ve got any additional cash, whether you’re looking to raise any additional funds for anything else in the not too distant future. So it can be more. It can be less. It can be the same. We can change the term. We can increase the term, decrease the terms that basically it’s like looking at a mortgage from scratch. We can we can do what we want subject to affordability and obviously subject to the equity in the property.
For example, Debt Consolidation if you have got loans or credit cards, it can be consolidated and put into one payment – the mortgage payment. It would be subject to leaving enough equity in the property and would be determined by the loan to value and also fit with the lender’s affordability calculations. We would assess what debt you’ve got in the background and then advise you accordingly whether or not the right thing to add into your mortgage or not. Obviously, there are some considerations there that at the moment personal loans and credit cards would be unsecured debt.
It’s not secured against anything, i.e. if you don’t pay, the lenders can’t take anything away from you. But by securing it in with your mortgage, it’s been secured against your home. So if you do make the payments, then your home is at risk.
So we might recommend that you put some of the debt in with the mortgage, but actually keep some of them separate. So, it’s a full assessment, full consultation. And then we would advise you on the best course of action.
Many people may not be moving home, but looking for a home improvement. So you remortgage to borrow more to do home improvements.
Additional capital for home improvement, an extension, new windows, new bathrooms, kitchens, etc., rather than moving. That’s perfectly acceptable, as long as there’s enough equity remaining in the property, as long as it fits on the affordability calculations, then there’s absolutely no reason why we can’t do that. Many lenders just require an estimate of the works.
Changing the Terms:
Changing the term of the mortgage – why would people do that? For most people, if they just remortgaging and not borrowing any extra cash. What you will find is that the interest rate may come down. Rather than accepting a lower monthly payment you could look at keeping your mortgage payments the same as you have been paying and therefore reduce the term of the mortgage. This would save money that you would have been paying on interest over the longer period of time.
Similarly, if people are doing home improvements or debt consolidation, it may be a case of them sort of extending the term so it can go either way so you can either reduce the term or extend the term.
Reducing the term has the potential to have a big impact on your life. The fact that you could potentially be retiring earlier than planned and things like that is a big life change. You really would know the difference if you had your mortgage paid back five years sooner as it would save you £1,000’s in interest.
Advice for First Time Buyers?
It is worth thinking ahead. If you go onto a fixed deal for two-five years with a mortgage term of 30-35 years, you will want to keep the payments as low as you can, which is understandable. You will be making sure you can live as well as afford the house. It is important to look at what you feel you can afford per month at that particular stage. You may have had a 10% deposit so the interest rates may have been a little higher. Once you have been in the house 2-5 years, the house is worth a little bit more now than you paid for it, so the loan to value is going down to 85% rather than 90%. A mortgage broker could look at options to keep the payments the same but lower the term. So that frees you up sooner.
The point is, if you can reduce the term and pay back more of the capital, then what you are doing is increasing the equity in your property as well. It’s about having the balance between paying your mortgage back and saving as much money as you can in interest, but also having the money to live.
What are Repayment Charges?
An early repayment charge tends to apply during the fixed rate of the deal period. It might be a tracker, but it is during that period of the deal. It is a penalty charged by the lender if you redeem the mortgage within that deal period. It is usually a percentage between 1-5% and it depends where abouts you are in the deal as to what % applies.
So obviously if you are in the very early stages in the first year, the penalty tends to be higher. But as time progresses throughout the deal, the nearer you get towards the end of the deal, the lower the charge generally is.
Now, what we tend to do is to coincide with the end of the charge period, the end of the deal. That’s not to say that if you’ve got a mortgage and you want to do home improvements, for example, and you do have repayment charges or you want to move on, you’ve got charges, it doesn’t mean it’s impossible. It just means that we’ll do a little bit more digging. On your behalf.
Do I have to switch lenders when I remortgage?
We would still assess staying with your existing lender as a remortgage. “Let’s have a look at how much it’s going to cost you to stay with your existing lender and what they’re going to offer you.” Often those rates are published on the website, so it means that we need to go and find out what you would actually get offered if you were to stay with the existing lender. And then we would also look at pricing up what it would look like to move to a different lender.
And then we would advise you, which is the most financially viable option. Now for some people they just don’t have any choice, they might not be in a position to be able to remortgage to another lender at the moment. That might be through a change in employment criteria. Something’s happened at home, whether it might be a case of the valuation of the house, for example. There’s a lot of reasons why people can’t always change their lender, but we can still look at product transfers with the same lender and not just accept the fact that rates are increasing and that is what you must pay.
Let’s have a conversation with the lender and see what we can actually get, because you shouldn’t be a mortgage prisoner just because circumstances change and you can move to a different lender. There may actually be a solution staying with your existing lender.
Why use a Mortgage Broker?
It is such a simple process to speak to a mortgage broker. Getting through to individual lenders on the phone is quite difficult, by the time you’ve sat on hold for half an hour to a lender, you could have spoken to us and had a conversation and know what your options are.
If you speak to your lender, they’ve only got their products they could discuss with you if you speak to us we’ve got over 50 lenders on our panel at any one time. It’s a no brainer.
We are also people who can speak to we’re not just a screen. We are built in comparison site with all the small print available to us, with the conversation with a person to speak to.
I think it’s important that people don’t take the easy option (of doing nothing) because it could end up costing them quite a lot of money.
What is the Process for Remortgaging?
At the moment we are mainly doing telephone appointments, but just make an appointment so we can discuss your circumstances – it is a free consultation.
We will advise you of the documentation that will be required. We will provide you with access to a secure document exchange facility where you can drop things like your payslips, your bank statements and your ID into a Drop Box, we then pick them up securely.
We can assess everything and then come back to you with some options of what’s available to you. Basically, you agree that we do all the paperwork for you. So the only bit of work really that you need to do is having a chat with us and dropping your paperwork into the Dropbox and we do the rest.