Additional borrowing against the increased equity in your home is tempting, but don’t apply for anything until you’ve covered some basic questions…
If you want to benefit from a better mortgage rate or borrow additional funds it can often pay to switch your home loan to another lender.
A remortgage can help you to save money – but there are a number of factors to consider before you go ahead. Here are five questions you should ask yourself before remortgaging.
1. Are there any early repayment charges with my current lender?
Before you start the remortgage process you should always establish whether there will be any penalties for coming out of your current mortgage.
If you are on a fixed or discounted rate product then you may have charges to pay for redeeming your mortgage early – and these can often run into thousands of pounds. (What are early repayment charges?)
2. Can my existing lender offer me a decent deal?
When considering switching your mortgage it is always worth speaking to your existing lender first.
Over recent years many lenders have improved their retention strategy, meaning that most now have some deals available to existing borrowers. Find out what ‘loyalty’ rates are available if you stay with your current lender.
Taking a new product with your existing lender may also be more straightforward and involve less paperwork.
3. What’s my property worth?
If you are going to remortgage it’s useful to have an idea of what your home is worth. You’ll need to provide an estimated value to your new lender and they will offer you a deal based on the loan-to-value you wish to borrow.
Don’t overestimate the value of your property as this could lead to problems later. Your new lender will always send a surveyor to value the property and a downvaluation could affect your interest rate or the amount you can borrow.
4. Will I be able to get a new mortgage based on my income and expenditure?
New mortgage rules that came into force in 2014 mean that lenders now have to more closely analyse your income and expenditure. They also have to undertake more rigorous tests in order to prove that you will be able to afford your mortgage both now and in the future.
If your circumstances have changed since you took out your mortgage, don’t assume that lenders will now apply the same income multiples or criteria. Just because you have been paying a mortgage for several years doesn’t mean that you will automatically be approved for a new loan without going through a number of checks.
5. Are there any costs in remortgaging?
If you are remortgaging in order to save money, it’s not just the interest rate on the new product that you should take into account. You also have to factor in the other costs of remortgaging which may include:
- a valuation fee
- a product/arrangement fee
- solicitor fees
- admin or early repayment charges to your current lender
A mortgage broker will be able to help you balance the savings against the costs of remortgaging and advise you on the right course of action.