"If your circumstances have changed since you applied for your current mortgage, it’s well worth discussing this with a broker who can help you understand the effect it’s likely to have on your borrowing"
- Sarah Thompson - Mortgage Scout
Remortgaging your home is more or less the same process as getting the mortgage when you first bought the property; however, it’s important to bear in mind that your circumstances may have changed.
For example, you may have moved jobs – or even become self-employed, or had a family, and both can impact what you can borrow. In addition, the value of your property may have increased, which may mean you borrow a lower percentage of the property’s value – which can help secure a more favourable interest rate.
To remortgage, you effectively need to submit a fresh mortgage application. The lender will revalue your home, and you will be committed to the terms of the new product once your application has been approved – which may include an initial tie-in period.
The process can take some time, so you should plan well ahead and start looking for a new mortgage 6-12 months before your current deal or tie-in expires.
Here are five of the top potential pitfalls to watch out for:
Not using a broker
Although lenders often have exclusive deals for existing customers that may look enticing, a much more suitable mortgage product could be available via a different provider.
This is why working with a broker who is not tied to any particular lender is advisable. They can look at all current deals and help ensure you have the most appropriate product for your circumstances.
They can also help advise you on the best options for your circumstances without alerting the lender that you are considering remortgaging.
Not understanding penalties and fees
Sometimes, people aren’t aware of the fees their lender will charge for early repayment of a mortgage. Regardless of when you redeem a mortgage, most lenders will charge an administration fee for closing your account, which is commonly anywhere up to £300.
While this ‘exit fee’ may not be significant in the grand scheme of things, it is important to understand the early repayment charge you will have to pay if you redeem a mortgage during the introductory period of a fixed-rate, tracker or discounted deal. The ERC is usually a percentage of the remaining mortgage balance, which reduces as the period gets closer to its expiry date. For example, if you have a five-year fixed deal, the ERC may be 3% in year one but reduced to 0.5% in year 5.
Sometimes, a new deal may be so much better than your existing one that it’s worth remortgaging early and paying the ERC. So it’s certainly worth enquiring if interest rates are coming down, regardless of how much time remains on your current mortgage.
Not considering whether your circumstances have changed
Your employment status, salary, debt position and even whether you’re single or married can all have an impact – positive or negative - on how much you can borrow. When it comes to remortgaging, you may find that you’re not able to get another loan at the same level as your current mortgage, or you could be pleasantly surprised at the options that have opened up for you.
So, if your circumstances have changed since you applied for your current mortgage, it’s well worth discussing this with a broker who can help you understand the effect it’s likely to have on your borrowing.
Not remortgaging often enough!
The vast majority of borrowers have fixed-rate mortgage products that give a preferential rate for an initial period. During this time, there is a financial penalty for redeeming the mortgage. Still, once it has expired, you should be free to remortgage and move to a different product with another lender if necessary.
Lenders usually release new products every three to four months, and they can be highly competitive with each other, which means there may be another product out there that may cost less each month than if you stay on your current deal once that initial discounted period has expired.
In simple terms, it is worth considering looking to remortgage every two to five years (depending on the fixed term) to be aware of any better mortgage products for your circumstances.
Not ensuring your home is presented as well as possible
Mortgage interest rates reduce as the loan-to-value percentage comes down, so the more your home has increased in value since you bought it, the better deals you should be able to access when it comes to remortgaging.
And in order for the lender’s surveyor to value the property at the best possible market rate, if they visit the property, it needs to be in the kind of condition you’d expect if it were on the open sales market: as well-maintained and appealing as possible. So, if you’re thinking of remortgaging, it’s well worth taking the time to carry out any necessary maintenance and freshen up the décor.
