Remortgage Deals – October 2021 – Forbes Advisor UK
Chances are, your mortgage is the biggest financial commitment you’ve ever made – and it’s probably your biggest monthly outlay. So this is an area of your household finances that you certainly don’t want to pay too much for. Here we explain everything you need to know about remortgaging and how to get the best deal possible.
When to start the remortgage process?
Lenders will usually allow you to lock in a mortgage rate three months before you want the deal to begin – sometimes it’s six months. So, generally speaking, it’s a good idea to start looking for a new mortgage contract about three to six months before your current contract ends. This will give you plenty of time to browse the market efficiently.
That said, you don’t have to wait until then. You can start the remortgage process at any time, although in many cases it won’t be worth going until your current contract ends, as you will be subject to a prepayment charge (ERC) – more than that. information below.
If remortgage is the right decision, there are some great deals out there, especially if you have a good chunk of the equity in your home. Costs for two- and five-year fixed rate mortgages currently start at less than 1%, if you’re looking to borrow only 60% or less of your home’s value.
What are the available remortgage offers?
Below is a dynamic table of the types of remortgage offerings currently on the market (just make sure to select the remortgage option in the top box). You will also need to enter your criteria, such as whether you want a fixed or variable rate and over how long, as well as the term of the mortgage to calculate the monthly payments.
How do you look for a new mortgage contract?
Some general research on available remortgage deals is a great place to start. But you might also want to contact your existing lender to see what they can do. In an effort to keep your business, he may offer you a “product transfer” that turns your mortgage into a new offer.
The advantage of opting for a product transfer is that it usually avoids fees. You also probably won’t need to undergo a new affordability assessment, which could be especially helpful if your income or circumstances have changed.
However, make sure you compare what is on offer with the open mortgage market and that you get the right kind of deal for your situation.
It is often easier to talk to an independent mortgage broker. Many don’t charge the customer a fee and may have access to exclusive offers you won’t find elsewhere.
What Happens When You Remortgage?
Once you’ve found the mortgage deal that’s right for you, you can apply through the broker or directly from the lender.
At this point, the new lender will get the ball rolling and do all the necessary checks. He will assess your financial situation through his own “Affordability Assessment”. This looks at your expenses and income to see if you can afford the mortgage amount you requested.
The lender will also perform a “stress test” of your finances to make sure that you can still afford to repay if interest rates rise in the future. This involves applying a higher interest rate to its calculations – up to 7%.
Your credit history will also be checked to see how you’ve handled your debts in the past.
If the lender is happy to proceed, they will need to ensure that your property offers sufficient financial security for the amount you wish to borrow, which means performing an online (“desktop”) or physical appraisal of the property.
However, appraisals are often free when you re-mortgage.
You will then receive a mortgage offer to sign which is usually good for about three to six months. Legal work ensues to manage the transfer of your mortgage.
Finally, your new mortgage account will be opened on the end date of your current mortgage contract, which guarantees you a period during which prepayment charges apply.
What happens if you don’t remortgage?
At the end of your current mortgage contract – if you take no action – you will automatically be transferred to your lender’s Standard Variable Rate (SVR).
SVRs are considerably more expensive than new mortgage offers (a typical SVR is in the order of 4%), which means your monthly mortgage payments can go up quite quickly.
In addition, your lender’s SVR is variable. This means that it can change at any time, depending on what is going on in the wider economy and interest rates. This could make the budget difficult.
Can you borrow more at the same time as you remortgage?
You may want to borrow more when you remortgage by releasing some of the equity you’ve built up in your home over the past few years. This money could be used, for example, to pay for home renovations or reduce other more expensive debts.
Suppose, for example, that the value of your house has increased from £ 300,000 to £ 350,000. If you owed your lender £ 240,000, but got a new mortgage for £ 280,000, you would be left with excess cash of £ 40,000 (less fees).
By borrowing more, you will pay interest on a larger amount. However, if you have credit card debt or personal loans, mortgage rates are most likely cheaper.
What else can I get by remortgage?
In addition to lower interest rates or the ability to borrow more, refinancing can also provide access to a more flexible mortgage arrangement. It could help you pay off your debt faster and save money on interest.
Here’s what to look for.
Make unlimited overpayments: Most mortgage agreements – even at a fixed rate – allow you to overpay about 10% of your mortgage balance each year, without penalty.
But there are offers without ERC which means you can pay as much as you want at no cost. If you’re lucky enough to be able to do so, it can save you years over the life of your mortgage and save thousands of pounds in interest.
Take out a compensatory mortgage: If you have a lump sum savings, it can be deducted from your mortgage balance to reduce the cost of your repayments. For example, if you have £ 50,000 in savings and a mortgage of £ 150,000, you will only pay interest on the difference of £ 100,000, while your savings remain intact.
What are the remortgage fees like?
Aside from the interest rate, consider carefully at all costs when you remortgage.
Prepayment charges: The biggest problem is ERCs, which are taken when you exit (or “buy out”) your existing mortgage agreement earlier. ERCs are typically charged between 1% and 5% of your mortgage balance. For example, you would pay £ 10,000 to make an earlier deal with a 5% ERC if there was £ 200,000 left on your mortgage balance.
Many offers feature “tiered” ERCs, which means it’s cheaper to start with each year of the mortgage deal.
Exit costs: Many mortgages charge an administration or “exit” fee only for closing your mortgage account. It is usually between £ 50 and £ 200.
Arrangement fees: These fees are usually set at around £ 1000, but can be higher. As a general rule, the lower the mortgage rate, the higher the fees. The importance of paying high fees to access a lower rate depends on the size of your mortgage. A good broker will help you make the necessary sums.
Appraisal and lawyer fees: Due to the fierce competition for businesses, many lenders offer remortgage deals with free appraisal and legal service. Some offer cash back to cover these costs (amounting to around £ 300 or more). However, it’s still worth checking out.
What will happen to mortgage rates?
Some experts suggest that interest rates could rise in the wake of rising inflation, which may make keeping the rate low now a wise move.
But no one can know for sure what lies ahead for interest rates – or the economy in general.
Whether you want to remortgage really depends on your personal circumstances and whether it is the right choice for you at the time.
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