5 Crucial Tips When Remortgaging

You might be very happy with your house, but are you happy with your mortgage? Perhaps you have a good deal, or maybe you are paying more than you need to.

Remortgaging is the process of coming off your existing mortgage agreement and getting a new deal (perhaps with another lender), which offers you a lower monthly payment. The idea is to get a new mortgage where the savings outweigh the costs of switching over.

Naturally, this guide will be less relevant to first-time buyers and more helpful for people looking to either move home or move lender. Here, we’ll be sharing 5 crucial tips to consider when remortgaging. It’s important to note, however, that this content should not be taken as financial advice. It is for information and inspiration purposes only.

#1 Consider the “Why”

There are many reasons why you might want to remortgage, and it’s important to have these firmly in your mind before getting started. For most people, the primary goal will be to eventually put more money in your pocket via lower monthly mortgage payments.

It’s also quite possible that your mortgage does not suit your needs or circumstances anymore. For instance, perhaps you’ve had a significant pay rise and now want to start overpaying on your mortgage (to reduce the mortgage term). Perhaps your existing deal does not allow you to do this, and so you want to find something with more flexibility. Or, maybe you want to borrow more money but your current lender is either refusing, or they are offering you a poor deal.

It might be, however, that your reasons for wanting to remortgage need re-examining. For instance, if you are on a very good deal already then it makes little sense to go through the trouble and costs involved with switching. There are also sad cases where people are locked into bad mortgage deals with terrible early repayment charges. This is likely to mean that you are probably better-off simply waiting until the end of the incentive period.

#2 Check Credit Score & Equity

There is little sense starting the remortgaging process if you are in negative equity, or if you have a poor credit score. In the latter case, you might be prohibited from remortgaging at all if you have missed several loan payments or utility bills.

In the former case, “negative equity” refers to the unfortunate case where your house has declined in value, to the point where its value is lower than the figure you owe on your mortgage. You might be able to ask your existing lender for improved mortgage terms in these circumstances. For most people, it is likely to be more sensible to avoid remortgaging for now.

#3 Prepare Your “Deposit”

Remember, “Equity” is similar to having a deposit for a house. So if you are in strong, positive equity on your current property and you are thinking about remortgaging, this is a good start.

You will need a good amount of equity to have a chance of getting a good mortgage deal. At the minimum, you will likely need 5% of the property’s value. To get the better deals, you will probably need at least 20% and to get the best deals you will likely need around 40%.

#4 Scrutinise Your Finances

When it does eventually come to the point of approaching different lenders for remortgage deals, you will need to discuss your finances with them. Gone are the days of “easy lending”, when you could just basically walk into a bank and get a mortgage. These days, your income and expenditure are carefully analysed by potential lenders to ensure you can keep up with your mortgage payments.

Indeed, most lenders will “stress test” your finances to make sure you can afford the payments even if a significant rise in interest rates occurred (e.g. 6-7%). It’s a good idea, therefore, to go over your bank statements with a fine tooth comb and to look at them through the eyes of prospective lenders. Are there any areas of unnecessary spending, for instance? Are there any debt payments which could be cleared? Are you in your overdraft?

Self-employed people and contract workers will, unfortunately, likely have more hurdles to overcome when it comes to remortgaging. Make things as easy for yourself as possible by preparing your various tax returns and business accounts, ready for examination by the lender.

#5 Think About the “Deal Type”

There are a few different types of mortgages which you could switch to. A few examples are a standard Variable Rate (SVR) mortgage, fixed rate mortgage, discounted rate mortgage, tracker mortgage, flexible mortgage, capped rate mortgage, offset mortgage etc. All come with their respective advantages and disadvantages, and it’s important to consider these in light of your current financial situation and goals when you’re thinking about remortgaging.

In general, fixed-rate mortgages have the advantage of offering predictable monthly payments over the term of the deal (e.g. 5 years). On the other hand, if you want to withdraw early from the deal in order to switch, then you will likely face financial penalties.

SVR mortgages are attractive to people who think they might want to switch again in the near future, as they tend not to bring early repayment charges. However, they do bring a degree of uncertainty as your lender could raise your monthly payments down the line.

This is a crucial part of remortgage planning, and we recommend that you speak with an experienced financial adviser and mortgage broker if you are thinking about this option.