House remortgaging
This is the process of switching the prevailing mortgage to another deal with the existing provider or another lender. It doesn’t mean that you are moving house. Rather, the new mortgage deal will still be secured by the same home. If you want a new deal from your mortgage lender, remortgaging is a good option. Your home loan can last for many years so you must analyze your finances critically before you change the terms and conditions of the loan. This decision is as important as the one you made the first time you applied for a mortgage.
Why should you remortgage the house
Unlike in the olden days, today you can switch your mortgage lender after a particular term. If you discover another provider who can help you save, feel free to switch to their service. As long as you are a reliable borrower and have good credit, you can get a good deal out there. Ask help from mortgage broker when shopping around to ensure that you are making a good choice. Perhaps you are incurring too much on the existing home loan. Why not look out for better deals that can boost your savings in the long run? Check the summarized reasons for remortgaging.
- To minimize monthly installments with a cheaper mortgage
- To release the accumulated value of your home for other uses like renovation
- To extend the term and reduce monthly payments
- To reduce the interest rate by switching to adjustable-rate
- To protect yourself against possible financial crises
- To consolidate debts
If you are remortgaging to consolidate debts, make sure to seek expert advice lest the debts end up costing you more in the long term. And when you need to release equity, make sure that you will afford the new monthly payments.
What are considerations for remortgaging a house?
Refinancing your home enables you to change the prevailing terms like the length of the repayment period and the interest rate. But there are certain factors you should put into the account. Note that you will be closing on your home again. The closure comes with extra charges like inspection, valuation, appraisal, loan origination, and closing charges. You have to provide these fees out of your pocket.
Alternatively, you can opt for zero refinancing whereby your lender will include the fees in your loan in addition to a higher interest rate. If you choose to extend the life of your mortgage, you will have to pay more interest in the long run.
The process of remortgaging a house
If you took the original mortgage with no deposit or a very small amount, you may not be able to remortgage as the equity might be insufficient. So, you will continue with the same lender’s terms and conditions. But if the equity allows, your lender should give you a remortgage application. The process is almost the same as the original one so it shouldn’t overwhelm you. Here are the steps you should take.
1. Gather your paperwork
Start your remortgaging plans at least 6 months before the current mortgage term ends. Have your bank statements ready to give a proof of how much debt you are in. if you have a variable mortgage deal, you might want to determine how much interest you were paying before the rates began to fluctuate.
2. Calculate the cost of refinancing
Some of the charges that make remortgaging expensive include early redemption fees particularly on capped, discounted, and fixed-rate mortgages. Check the exit fee as well which is charged during closing. It covers for releasing your title deed and land registry. Ask the lender to provide a quote for clearing what you owe in addition to other charges. The exit fee should match those on the mortgage contract.
3. Consider the restrictions
Certain mortgages come with overhung tie-ins. Your lender might also ask for SVR for a certain period of time once the first deal comes to an end. If the interest rates reduce, variable mortgages become cheaper than fixed-rate mortgages. So, it would be expensive to stick to the same rate in the long run.
4. Get a suitable mortgage
Compare different fact sheets to determine what kind of loan is suitable for you. Track the deal down and speak directly to the lender. You can also use comparison rate websites like homeloansforall.com. If the legwork is too much for you, find a mortgage broker to assist you.
5. Calculate the overall cost
A good deal doesn’t always come cheap. You might pay for legal fees, application fees, and valuation fees. They may be included in the loan and you will still pay interest on them. It might be better off to use the legal service of the lender.
6. Match or better the deal of your choice
Even if the new deal doesn’t isn’t that appealing, you should ask the lender to match it to give something similar to save your time and money.
7. Apply for a new deal
If your current lender doesn’t offer a deal worth staying for, feel free to apply for another deal. Do it months before the existing offer expires. It pays to start early but you can always look elsewhere if you are turned down. In the event that house values are declining, you can leverage on the equity and set it as a deposit.
8. Wait for a response
If the lender accepts the application, and after you have paid all the fees, they will send you an offer stipulating the deal. Once the deal is closed, you will be given a completion statement. This process takes about 4 weeks.
Mortgage agreements encompass a plethora of terms and financial clauses which are not always pleasant for young couples. The private mortgage insurance plus the variable interest rate may not be favorable and you can always create a new contract with your lender. Most people refinance their adjustable-rate mortgage to change the monthly payments and save a little money gradually. By changing the terms and clauses, you might realize benefits which you would have otherwise missed. You can qualify for better rates if you have a low loan-to-value ratio and more equity. Check out how much mortgage you can afford.
