If your initial special rate on your mortgage is coming to an end, or you’re looking to move up the property ladder you may want consider remortgaging - paying off your existing mortgage and switching to another lender, or another deal with the same lender.
Here are 5 things you can do now to get help you get the best deal when remortgaging this year.
1. Know your LTV
Before you can start looking for deals, you’ll need to assess what size of loan you’ll need. How much equity do you currently have in the property, and could you put in any more? If you can increase the amount equity in a property you may be able to get your hands on a better interest rate.
You’ll also need to know roughly how much equity you have in your home so that you can start comparing deals.
2. Work out the fees and costs
You already have experience of the costs associated with taking out a mortgage, and it’s important to remember that moving your mortgage is likely to incur some costs as well. You should take these into account when working out whether moving your mortgage is a cost effective option.
Potential costs could include:
- Exit fees - many lenders charge a fee if you leave a current mortgage. These could be avoided if you stay with the same provider
- Application/product fee - this will cover the administration costs for your new mortgage, and can cost anywhere up to £2,000
- Depending on your lender, you may have to pay to get your home revalued - although a valuation may be included in the product fee
You will need to add up all the fees and costs involved, and work out how much you can afford to pay.
3. Decide what you want to achieve
At this point you should consider the different types of mortgage - fixed rate, tracker, discount etc - and whether changing to a different mortgage type would better suit your circumstances. Do you want to simply find a deal with a lower rate of interest, or do you want to shorten your term by making overpayments? If your current mortgage doesn’t allow overpayments, you could consider switching to one that does. Before you do this, you will need to look at all aspects of the new mortgage to make sure it meets your needs, and work out whether larger monthly repayments will fit into your monthly budget. Whatever your goal when remortgaging, you can use Money Hub to work out how your new repayments will fit into your monthly budget, and how remortgaging could affect your long term plan.
4. Start looking at rates
Once you’ve decided what kind of mortgage deal you’re looking for, it’s a good idea to shop around and compare rates as much as possible - even if your current fixed rate deal hasn’t expired yet. If you approach a lender and get an agreement in principle, they will usually be able to hold the rate they offer you for six months. This could work to your advantage if rates rise dramatically between the time you book your rate and the date your current deal expires. How far ahead you can book rates can vary between lenders, so check with the providers you’re interested in. You can compare the latest rates and deals in our Mortgages section.
5. Make sure you can still meet the affordability criteria
If several years have passed since you first applied for a mortgage, some lenders may well have changed their criteria since then. If your circumstances have significantly changed in this time, for example if you or your partner has stopped working to take care of a child, you may find that passing the affordability checks isn’t as easy as it was the first time.
The Mortgage Market Review comes into force this month, which requires lenders to tighten up their affordability checks. This means that a mortgage provider will have to carry out a thorough assessment of all your monthly income and outgoings, and carry out a “stress test” to make sure you could cope with a rise in interest rates in the future. As a result, it is likely that the process of getting a mortgage will take longer this time around, and figures from the Intermediary Mortgage Lenders Association show that 57% of lenders believe more people will be turned down for a mortgage in light of the changes. To be on the safe side, you may want to carry out an affordability check of your own before you apply - use the Budgeting tool in Money Hub to look at your monthly outgoings and see where you could make some savings.
Getting the right remortgage deal for you could save you money and stress in the future, so preparation is everything!