When your mortgage deal comes to an end, you may want to shop around for a new product. This is known as a remortgage. Doing nothing and staying with your current lender after the end of the agreed term of your previous mortgage rate - say two or three years - will mean that you revert to the lender's Standard Variable Rate, which maybe a couple of per cent higher than what you are used to paying. While you can stay on your lender's Standard Variable Rate or may even move to a new deal with your existing lender, you can also change to a completely different deal with a brand new lender - the whole mortgage market is available to you.
Reasons for remortgaging
- Getting a better rate: Typical reasons for remortgaging tend to be to get a better rate (especially if your initial deal period is over and you are about to revert to an uncompetitive standard variable rate), to consolidate debt or to release equity.
- You may also have to remortgage if you want to move house. In such a situation, even if your lender will allow you to transfer your mortgage, it will probably require a valuation of the property to ensure it meets its standards.
- Remortgaging needn't only occur when your mortgage term comes to an end. Some people take out a new mortgage simply to save money on their monthly repayments. For example, you may take out a fixed rate mortgage only for interest rates to fall, leaving you stranded on a higher rate. Remortgaging to a more competitive rate in these circumstances may make financial sense. Bear in mind that remortgaging is not a cost-free process though. Your current mortgage may carry penalties or charges if you try to leave it early, plus there will probably be costs associated with the new deal, so these need to be taken into account.
- In the past, remortgages were popular as homeowners sought to withdraw equity from their properties to fund the likes of home improvements or holidays. In the current economic climate with slowing house prices and higher interest rates, this is not such a common occurrence and a remortgage should really be driven by need rather than luxury.
The sub-prime remortgage
If you have an impaired credit record (you may have previously been declared bankrupt or received a County Court Judgement) and are looking to obtain a mortgage, you will probably be offered a sub-prime mortgage. This is likely to be at a higher interest rate than a mainstream mortgage as you represent a higher risk to the lender. But the intention of sub-prime mortgages is rehabilitation. If you successfully make your monthly mortgage repayments, when you come to remortgage it will make it more likely that you will be able to access a standard mortgage deal.
At the moment, many lenders have pulled out of the sub-prime mortgage market. This could make it difficult, or perhaps even impossible, for you to remortgage.
- As a result of the credit crunch, a number of lenders pulled their larger loan-to-value (LTV - the amount lent as a percentage of the property's value) mortgages in spring 2008. All 100% and 125% mortgages are no longer available, meaning that borrowers can no longer obtain loans for more than the property's worth. Although this wasn't good news for first-time buyers, it also reduced the chances that borrowers already on such deals would be able to get similar percentage loans when they came to remortgage.
- You may find that you need to build up more equity in your property before you can remortgage as most lenders will only offer a LTV of 90% to 95% at the moment.
- Lenders are being tighter with who they lend to and how much they lend given the current economic situation, so if you got a good mortgage deal a couple of years ago, don't necessarily expect a similar rate this time round.
How to remortgage
Brookmill IFA Ltd, an Independent Financial Adviser in Gloucester, can assist you. Even if you are staying with your existing lender, remortgaging should be relatively straightforward. We can help you by finding out what the most appropriate product is for you with your lender as they are unable to give you advice.
But don't feel like you have to stay put - there are a whole market of lenders out there who may have a more suitable mortgage for you.
With mortgage rates changing all the time Brookmill IFA Ltd has access to the whole mortgage market and we are able to find the right mortgage for you by using a mortgage sourcing system that is updated in real time. We also have access to products that aren't available direct to consumers. We find the deal that is right for you whether you are looking for a remortgage in Gloucester, a mortgage in Bristol or the surrounding areas.
We are regulated by the Financial Services Authority, meaning we are bound by a code to treat customers fairly.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
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