The process of refinancing can help you save hundreds of pounds. But there are a lot of details you must be aware of to make sure that you get the best deal.
Why should I refinance my mortgage?
When you first started taking out for your loan, you could have signed up for a really good deal. But over time it is common for the market to change and new deals are made more readily available. This means that there could be an offer that is better for the moment that could save you hundreds of pounds.
There is no need to switch lenders.
Make sure you check whether there are any arrangements or product charges on the mortgage you’re looking at If you’re completing your mortgage deal early, you should inquire about early repayment charges from your existing lender.
These costs can increase the cost of remortgaging and might make remortgaging more expensive than staying on your current deal.
When is the best time to remortgage?
Remortgaging is possible at any time. But if you’re not at the conclusion of your fixed or discount rate period, you could need to pay an early repayment charge.
Many people choose to refinance their mortgage after they reach the final year of their fixed or discount rate term because that is when your mortgage will become a bargain.
Before you switch, be certain to review the costs.
Some lenders may offer fee-free deals to tempt you however, if they do not then you’ll be charged legal, valuation and administration expenses to cover.
You can utilize the annual Percentage Rate Charge (APRC) to assist you find deals.
The APRC is a way of making interest rates more accurate by including mortgage-related charges into the calculation, giving you an opportunity to compare the mortgage offers.
What might look like a saving deal may cost you money in the event that you don’t complete your sums first.
Reduce your loan-to-value in order to obtain the best rate
Every mortgage deal is subject to a limit on the amount you can borrow when compared with the current value of the property.
This is represented as a percentage and is called the ‘loan-to-value’.
When you refinance to purchase a home, the lower the ratio of loan to value you’ll require, the greater options are available to you. This could yield lower mortgage rates.
How do you calculate your loan’s value
Divide the amount of your outstanding mortgage by the current value of your home.
Multiply the number by 100.
Example
Your outstanding mortgage balance is PS150,000.
Your lender believes that your home is worth PS200,000
150,000 divided by 200 000 = 0.75
0.75 100 x 0.75 = 75 – so your loan-to-value is 75%.
Be sure to verify for any fees or costs.
Your lender’s valuation
If you are applying for a mortgage it is possible that the lender’s assessment simply be checking the outside of the house in the direction of the road.
If you believe that the price isn’t right – and you’re not getting more interest as a result – solicit the lender to reconsider.
For evidence for your argument, you may provide evidence of the price at which you sold similar properties within your locality and, in the event that it is relevant, you should list the cost of any home improvements you’ve carried out.
Remortgaging for a better interest rate
If you apply for a new mortgage generally, you’ll get an introductory deal.
It’s most likely your mortgage will have a discounted or fixed rate, or a tracker rate during the first few years of your mortgage.
The typical duration of introduction deals is Between two to five years.
Once the deal ends and you’re likely to be moved to your lender’s standard variable rate, that will typically be more than other rates you might be able to get elsewhere.
In the event that your trial period is over, look at the market to see if switching to a new mortgage will make you more money.
If you’re only left with just a little left to pay off your mortgage the savings of switching to a new one could not be enough to be worth it.
The flexibility of a mortgage
It can also allow you obtain a more flexible deal – for example if you want to overpay.
Perhaps you’d like to change to an offset mortgage or current account mortgage, where you make use of your savings to lower the amount of interest you have to pay permanently or temporarily – and have the option to withdraw your savings in the event that you require the funds.
A mortgage to help consolidate debt
If you have a lot of debt, you may be tempted to get extra money and use it to pay off your other debts.
While interest rates for mortgages are generally less than personal loans – and a lot less than credit cards, it is possible that you will pay more overall if the loan is over a longer period.
Instead of adding your debt to your mortgage, try to prioritize and clear your loans on their own.
Find out about mortgage offers
Remember:
Comparison websites won’t all give you the same results, so make sure to use multiple sites before making a decision.
It’s also essential to conduct some research about the type of product and features that you require before purchasing or changing supplier.
Consider carefully before you remortgage after fixed term and locking into a new deal with high early repayment fees when you’re thinking about moving to a new home in the near future.
The majority of mortgages are now “portable and portable, meaning they can be moved to a different property. However, it is considered as a new mortgage application so you’ll need to satisfy the lender’s affordability checks as well as other requirements to be approved by the lender for the mortgage.
If you aren’t able to pass the checks, then the only alternative is to seek out other lenders, which could result in paying the early repayment charge of your existing lender.
“Porting” a mortgage could typically mean that only the current balance is left on the fixed or discount deal so you will need to select a new deal for any additional borrowing for the transfer. The new deal will not fit into the timescale of the existing deal.
If you know you’ re likely to relocate within the early payment period of any new loan, you might want to look into offers that have low or no early repayment charges giving you more freedom to compare lenders when the time comes to move.
Ask for advice
Consulting a certified expert offers you extra protection since if the loan does not meet your needs, you can complain to the Financial Ombudsman Service (FOS).
If you decide to opt for the “execution-only” option (where you decide by yourself, without any advice), there will be few instances when you can be able to complain FOS.
