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Fact Sheet | Remortgage
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Key Factors to consider in today’s Remortgage Market following the fi nancial crisis.
Lender criteria in many cases has changed since prior to the fi nancial crisis, it is therefore prudent to research your remortgage options from as wide a range of lenders as possible. Many mortgagees’ fi nd that using an Independent Intermediary will generally be the most practical solution to assist with this process. Criteria that may have changed is:
The loan to value a lender may off er may have been reduced.
The multiple of income that will generally be used to calculate how much can be borrowed is often lower.
Self-Certifi cation of income is not available.
Your property may have fallen in value and therefore you may be restricted to the availability of schemes or unable to remortgage.
Another key consideration is the status
of the mortgage broker or lender that you use. Independent status is now only available for brokers that can advise on 2nd charge loans.
We recommend speaking to a professional Mortgage Broker as soon as possible if you are considering remortgaging as the market has changed so being proactive and using professional help will assist with the process.
What is Remortgaging?
Remortgaging refers to when you switch your existing mortgage loan provider to perhaps benefi t from a better interest rate or perhaps borrow more funds for such things as home improvements.
This can either be to a Mortgage with your existing provider or to a new provider altogether.
2nd charge loans are also available and research should be provided where additional funds are being raised over the existing mortgage balance. 2nd charge loans are becoming more competitive and comparable to the rates available through mainstream mortgage lenders.
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payments are likely to rise.
Consolidating credit card or loan debts into a mortgage can off er preferable terms and rates of interest than would otherwise be possible. This can lead to smaller payments servicing that debt, as they will now be part of your mortgage.
Releasing equity to fi nance home improvement or other investments can give far better terms and lower rates of interest than other forms of borrowing. Home improvements can actually increase the value of your property if carried out correctly.
Due to lower interest rates over recent years, it has been more common to see clients who are remortgaging use this monthly savings created by the lower interest rate to reduce their mortgage term.
NB: Releasing equity and consolidating debts on a remortgage must be fully considered, as you may well be detracting from the value of your home and paying interest on borrowed monies over a far longer time period.
It therefore makes sense to review all options available.
2nd charge loans are also benefi cial and should be considered, where there maybe early repayment charges on an existing mortgage and additional borrowing is required.
In the event that a remortgage or 2nd charge loan is not available and the amount of borrowing required is generally less than £25,000, then in some circumstances a personal loan may suit. What are the benefi ts of Remortgaging?
People can decide to remortgage their property for a number of reasons:
In the time since you applied for your original mortgage, better deals may have become available off ering lower rates of interest or lesser charges. Changing to one of those loans could reduce your monthly payments.
Mortgagees on tighter budgets or wanting stability of payment may prefer to fi x their mortgage payments if they feel that interest rates and therefore
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What are the potential Disadvantages of remortgaging?
If you are looking to remortgage it is advisable to take account of the following factors:
Mortgage lenders may have included an early repayment charge, fi nal repayment charge or other fees in your Mortgage contract. Remortgaging either to a new deal or an entirely diff erent provider may lead to incurring an Early Repayment Charge (ERC). A professional intermediary can guide and assist you through this.
When changing to a diff erent provider, legal representation and a revaluation of the property will be necessary. These can in some cases be provided for free by the company you are changing to, but in other cases these will be charged for.
If your property has dropped in value since you fi rst mortgaged it, you may be in negative equity or have a higher loan to value that may prohibit a remortgage. If this is the case, you will be required to pay in full the diff erence between your
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old mortgage and any new mortgage you acquire. Think very, very carefully about whether it is fi nancially prudent to remortgage if this is your situation.
The terms of the new contract may be substantially diff erent to your existing one. Be sure to ask all the questions you asked when fi rst purchasing your mortgage, if not more.
How much will Remortgaging cost?
Remortgaging in many cases can be very cost-eff ective, as many lenders are off ering free valuation and legal fees. However, there are very diff ering schemes on off er so it is always advisable to get professional advice. Factors than that can aff ect the cost of remortgaging are:
A new valuation and legal fees may apply when changing providers.
Early repayment charges, fi nal repayment fees or any other charges built into your existing mortgage that are charged if remortgaging.
A Higher Lending Charge (which may be rendered obsolete in the near future)
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which can apply if you are borrowing more than 75% of a property’s value.
If you’re in negative equity, you will have to pay the diff erence between the old and new mortgage.
Local search and Land Registry fees, if applicable.
Many of these fees may not apply to you, or will be covered by either your old or new lender.
It is important to know and be aware of all charges that you may incur and the new costs and terms of your new loan. Again it is advisable to seek professional help from an experienced intermediary.
How do you choose remortgage products?
Many people base their remortgage decisions on three diff erent factors;
Scheme type
Cost
Contract
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Scheme type refers to what method the mortgage uses to determine its interest rate. This could be tracker, variable, discounted or a number of other options.
Cost is self-explanatory, with the contract referring to how fl exible and favourable the terms, conditions and charges of the Mortgage are, these factors are important.
As an example if you were thinking of moving home in two years’ time, you may not benefi t from applying for a fi ve-year fi xed rate, as in two years’ time there will probably be early repayment charges payable to the lender in the event of repaying your loan early. It may therefore be more advisable to apply for a two-year scheme to avoid any penalties. As always we would advise that you seek professional advice and consider the following factors:
What is the initial interest rate, and how long does this rate last?
What is the lender’s Standard Variable Rate of SVR? If you stick with the Mortgage after its opening term, this is the rate you will be paying for the
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duration of the mortgage.
What loan-to-value (LTV) ratio is required by the lender? LTV refers to the maximum amount you will be able to borrow, and usually ranges from 75% to a maximum of 90 to 95% of the property’s value (please note that lending above 85% is extremely limited). Some mortgage lenders will go further in both directions. The larger the initial deposit, the lower the monthly interest rate charges.
What charges or fees are included in the mortgage? How much will they amount to over the fi rst year, or fi rst fi ve years? These can have a signifi cant bearing on the cost-eff ectiveness of your mortgage.
Is there an early repayment charge? What other charges and fees are there?
When all these factors have been taken into account, work out the overall cost of your mortgage over the fi rst fi ve years, based on the amount you wish to borrow and taking into the account the initial introductory rate. Doing this for a
number of products can indicate which is more cost eff ective for your money.
Who provides remortgage products & services?
While there are many things to consider when going through with remortgaging, careful planning and a full assessment of the options available will prevent any surprises impacting the savings or benefi ts you hope to achieve.
Take professional advice from a specialist Mortgage Broker, who can assist you through the options available from many diff erent lenders.
“A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.”
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME.
YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.
Important InformationThis factsheet is based upon our understanding of current regulation, law, tax and other legislation at the release date and may be subject to change in the future. Whilst every care has been taken to ensure the accuracy of this information, My Mortgage Experts can accept no responsibility for any actions taken as a result of this information.
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