The Remortgaging Guide
Before taking on a mortgage, which is a huge step in life and a very serious long-term commitment, borrowers undertake a thorough analysis of their financial situation as well as of the mortgage market at that particular point in time, and therefore selects the most convenient type of mortgage for their present and future requirements. Nonetheless, in time things change and both their financial situation and the mortgage market suffer inevitable modifications, which means that initial plans may be disrupted and borrowers may have to adapt to a course of events which differs from the plans and estimations they had initially made, at the beginning of the term. That is why a financial plan as complex and long lasting as a mortgage comes with enough flexibility, so that people are not stuck with a certain arrangement regardless of the turn their life has taken. Remortgaging basically means switching mortgages and more often than not, mortgage providers, which is a good option if one wants to take advantage of the constantly changing offers on the market. We spoke to the team at 'Remortgaging.org.uk' for some adivce;
When it is advisable to remortgage:
1. The expiry of a special offer in your mortgage
A very common reason why people decide to get a remortgage quote is the expiry of an offer included in the original mortgage arrangement, such as discounted interest rates, which means creditors offer discounted rates for a limited time, the discounts sometimes being considerable. In order to attract prospective borrowers, many lenders put forth a series of offers such as discounted rates, capped rates or fixed rates for a certain period of time, after which the borrower has got to pay the standard SVR rates, which will almost certainly be higher than the ones paid until that point in time. Therefore, when that pre-determined period of time expires and the interest rates are adjusted accordingly, the customer obviously feels the difference in terms of a substantial rise in monthly payments, which might result in financial outstretching and even an impossibility to continue making the monthly payments. Evidently people will try to make the best of any available option on the market and will take advantage of a discounted rate mortgage whilst favourable for them, and then try to switch to another deal offering them advantages.
2. The difficulty or impossibility to cope with additional debts
As we all know, when buying a property through a mortgage, there are many additional costs aside from the mortgage itself. First of all, the mortgage doesn’t cover 100% of the value of that particular property (although such offers do exist on the market but on a very limited basis and only accessible to certain categories of borrowers, which mean the most part of borrowers would not have access to them). Hence an additional sum is necessary in order to actually buy the property. And the smaller the LTV (loan to value) you are looking for, the higher chances you have of getting a mortgage, which is quite tricky in itself nowadays. By means of consequence, it is always recommended that you already have as much money as possible put aside to complete the payment for the actual property, which greatly increases your chances of securing a mortgage. An ideal situation would mean having saved up enough money for that, yet considering the current financial climate, ideal is pushed towards an extremity an becomes utopic for many people. And in that situation, if the mortgage is indispensable to you, there is no option left than to borrow more money from different creditors.
In addition to that, you have to pay a considerable deposit towards the mortgage, which is bound to increase for most mortgage providers as the new regulations are very strict and seem to have the sole purpose of restricting the number of mortgages approved to a minimum. And on top of that, every new home comes with many supplementary costs one is forced to deal with , plus the adjustments new homeowners tends to make in the spur of the moment, even if they are overstretching their budget. It is not uncommon for new homeowners to borrow money from one or even more creditors in order to meet all these expenses and still maintain a decent lifestyle. And it is not uncommon at all for borrowers to be unable to cope with the various debts, which can be stressful and affect not only the quality of life in terms of finances but also have a negative impact on a person’s morale, family life and psychological stability. And it is no secret that if one does not succeed in making the monthly mortgage payments, their home is in danger of being repossessed.
By remortgaging, a borrower basically takes on a larger mortgage, usually with a different lender, and pays off any remaining debts to other creditors, which is in itself a huge accomplishment. First of all, the monthly mortgage payments will be affordable as they will be calculated according to your income, as any regular mortgages, in order to permit substantial outgoings and not put a strain on your financial resources. You will only have one payment to make each month, and that is to your mortgage provider, which means avoiding all the hassle of repaying different loans, which can become extremely difficult if interest rates rise. And if you fail to make the payments to your other creditors in order to pay your mortgage, your case will eventually be passed on to debt collectors, which will use techniques as close to harassment as legally permitted in order to obtain the money from you. And the more creditors, the more phone calls, the more aggravation. That is bound to put a negative spin on your financial situation and your life in general, and the sooner you repay those debts, the sooner your life can get back to normal - that is why remortgaging is in this case the optimal thing to do. Needless to say, professional financial advice is always highly recommended.
3 Releasing funds from the equity of your home
A few years down the line from taking on a mortgage, the situations is slightly different from when you first bought your home, as you now own a higher percentage of it, having paid for it since the beginning of the term, adding to that the mortgage deposit and the additional sum necessary in order to buy the property. When you remortgage, considering the fact that you now own a more sizeable part of your property, you will be looking for a lower LTV (loan to value) ratio. This variable is very important and could secure a better deal for you with a different mortgage provider, and it is always worth keeping an eye on the market for the best offers. Borrowers usually remortgage every few years, in order to make sure they have the best possible deal at that point in time, and that is a very smart thing to do rather than maintaining the loan within the same parameters and risking missing out on a better option, as the financial market is extremely competitive and as good as a deal may appear in the beginning, there will soon be another one to top it and offer even more advantageous conditions.
Additional costs when remortgaging
Before you buy a property, it must go through a valuation process, and such is the case with remortgaging as well – this is a mandatory expense. On top of that, there might be fees for closing down your mortgage, which you should consider when choosing your initial lender, if you have a clear plan of remortgaging later. And needless to say, many remortgaging deals which look promising, as in very good rates and tempting conditions, just as flights from low fare airlines, come with huge supplementary charges, sometimes as much as a thousand pounds, thus it is worth pondering very well whether you are saving, losing out or gaining too little to complicate your situation by remortgaging.
Accessibility and conditions
Normally, if you have an existing mortgage, you can automatically qualify for remortgaging, yet you do need to meet the specific requirements of the new mortgage provider you would like to switch to. The conditions will be perceptibly tighter in the immediate future due to new mortgage regulations, hence there are some things you should contemplate which might be to your advantage. For instance, the lower the LTV you will be looking for, the higher your chances will be to secure a better deal than the previous one. In terms of the actual proceedings and their duration, remortgaging is a fairly simple practice and should take about four weeks. Your home will undergo a valuation process and then you will receive a completion statement from your current lender, providing you with all the necessary information to proceed with the remortgaging. It is highly advisable that you take this interval into consideration when planning to switch mortgage providers, should you want to switch as soon as the special offer (such as discounted, capped or fixed rates) has come to an end. And as always, it is recommended that you seek financial advice from mortgage advisors, to make sure you are making the most favourable move.