We reveal how the right mortgage deal can benefit your financial circumstances.
Are you sick of worrying about your financial situation? Does each month seem like a new challenge? You’re not alone. With the cost of living soaring in the UK, many households are struggling to make ends meet.
While credit cards and personal loans might provide a short-term solution, the repayments and skyrocketing interest rates often mean you are in more debt than ever.
One solution is to remortgage your property and find a more financially beneficial agreement than your current mortgage deal.
When done right, remortgaging can release some cash and help you get back on track, so it’s worth considering.
If you’re unsure how to secure a better mortgage agreement, read on – because we’ve got everything you need to know.
What does remortgaging mean?
Remortgaging is switching your mortgage to get a better deal. You can do this by taking out a new mortgage with a different lender or negotiating a better rate with your current lender.
The main reasons for remortgaging include saving money and finding a better deal that suits your needs. For example, some people are on fixed mortgage rates for a specified amount of time, and then these rates go up afterwards.
If they feel they might pay more in the future, looking for a more lucrative agreement that benefits them financially is common.
Others might have limited choices when they first take out a mortgage, but more options become available, and people choose to transfer their mortgage.
Once you switch to a new lender, you’ll be able to save money and make payments for the specified term.
The benefits of remortgaging
Property owners will know that their mortgage is the most prominent debt commitment. Some people secure excellent deals, while others find that their mortgage takes a significant chunk of their money each month.
Most consumers do a lot of research when finding a mobile phone deal or car, but for some reason, they accept an offer from a mortgage lender without looking around for better agreements.
Let’s look at the many benefits of remortgaging your property.
Your fixed-rate mortgage is coming to an end
Many mortgage lenders offer a fixed rate for between two to five years, guaranteeing you’ll only pay what you agree upon before signing the contract. However, once this contract ends, you’ll move on to the lender’s standard variable rate mortgage deal.
Your monthly mortgage repayments will increase, and some people find that they can’t afford to make their payments after the fixed-rate deal ends. When you remortgage, you can move onto a cheaper deal, saving you hundreds each month.
You want to switch to a repayment mortgage
When you take out a mortgage, you typically have the option to make repayments either on an interest-only basis or on a repayment basis.
With an interest-only mortgage, you only make repayments on the interest accumulating on the loan, so your monthly amount is lower than it would be with a repayment mortgage.
However, while the payments are lower, you won’t progress in paying off the loan amount. With a repayment mortgage, your monthly repayments are higher, including both interest and capital repayments, so you gradually repay the loan over time.
Some people might start on an interest-only mortgage but want to move on to a repayment deal. While many lenders will be happy to change the agreement, you might get a better deal by choosing another provider.
Your lender doesn’t let you pay more than the agreed monthly amount
If your mortgage deal states that you can only pay a bit of extra money into your mortgage each month, you might want to consider moving to a different agreement.
Some lenders will also have an early repayment charge, which means you’ll have to pay extra if you have a windfall and want to free yourself of debt.
It can be beneficial to change mortgages if you can find a provider that will offer more flexible repayment terms than your existing lender.
You’d like to borrow some more money
Some people remortgage because they want to release some money for a new purchase. It can be anything from a new car to some renovations, but it’s entirely up to the lender, and some might turn you down.
Many homeowners seek a new mortgage arrangement when their current lender doesn’t offer them reasonable rates or turn them down.
However, it’s essential to consider if you want to go this route, as there will be an arrangement fee, and the purchase should be something that lenders see as stable.
Things to consider before changing your current mortgage deal
While remortgaging can save money and open up new opportunities, it’s still a significant decision you shouldn’t consider lightly. Any borrowing agreement requires commitment, so if you’re still on the fence, ask yourself the following questions.
The early repayment charge is ridiculous
As you enter into a contract with a mortgage provider, you will have to pay an exit fee if you’re still within the agreement. In most cases, this isn’t a significant amount of money, but for some people, the amount means they’ll end up in more debt.
Evaporating equity is a term used to describe the loss of value in a property due to factors beyond the owner’s control. They include a decline in the local housing market, increases in taxes or insurance rates, or even changes in the surrounding neighbourhood that make the property less desirable.
If you’re a victim of evaporating equity, the value of your home will decrease – and your debt could add up to more than the value of your property. In these cases, avoiding a remortgage deal is best, as you’ll spend a lot more.
Your credit report isn’t good
You probably had a very good or excellent credit report when you entered your first mortgage deal, but what does it look like now? Lenders are notoriously picky, and even a slightly lower credit score can be detrimental.
Most mortgage providers will charge extra if your credit rating isn’t excellent, so you’ll end up in much more debt further down the line.
You have a change of circumstances
You should also remember that your circumstances might differ from when you agreed on your current mortgage deal. A small change, such as becoming self-employed instead of working for a company, might mean you have fewer options available.
Divorce or reduced income can also have negative impacts, so you might have to seek new borrowing options. Alternatively, you could ask your mortgage provider for a product switch and move on to a better deal for your needs.
Could you save money by remortgaging?
So, now for the big question; could remortgage deals save you money? There’s no simple yes or no answer to this question, as we must consider numerous factors, including your current agreement and how you plan to use the extra money.
Are you moving onto your lender’s standard variable rate?
With so many mortgage deals, knowing where to start is difficult. Fixed-rate deals always offer more benefits, and you can save a lot of money by using one. However, you might be moving onto your current lender’s standard variable rate, which will cost more.
It might seem like a great idea to switch to another lender, but you should look at how long the fixed deal will last and what the standard rate will be when the agreement ends.
A lender might offer you two years of lower payments but have a higher standard variable rate mortgage than your current provider. So, in the long run, you’ll spend more money.
What deals is your current lender offering?
Before even looking for a new provider, it’s worth checking the other deals available through your current lender. You might find a better product to switch to, and most lenders are concerned with keeping you as a client so they can offer more favourable terms.
Also, switching to a new lender means you’ll have to complete a lot of paperwork and go through an intensive application process.
What about the arrangement fee?
One of the most common mistakes we see our clients make is forgetting about the impact of arrangement fees. You could find two loan providers that seem almost identical in terms of interest rates and monthly mortgage repayments, but the arrangement fee makes a huge difference.
Always look for the lowest arrangement fee to ensure you don’t pay a fortune each month. For example, one lender might have a fee of £300, while another could charge £2000, adding that amount to your monthly payments.
Remember the other fees
There are also other fees to consider, including:
Your legal fees can range from a couple of hundred pounds to thousands, so you should always ask the lender before agreeing to anything. Staying with your current lender can reduce these fees, but you might not get a great deal.
The Valuation Fee
Before offering you a mortgage deal, the lender will want to look at your property and value it. Arranging a valuation can cost between £250 to £500, which isn’t much but can still impact your budget.
A redemption fee is a charge assessed by lenders when borrowers pay off their mortgage loan ahead of schedule.
The fee is typically equal to a percentage of the loan’s remaining balance and is designed to compensate the lender for the interest they would have earned had the loan been paid off on schedule.
Sometimes, the redemption fee will be excessive, resulting in you paying more money, making remortgaging a less attractive solution.
How much money could you save?
Again, there’s no right or wrong answer because it ultimately depends on your circumstances. For example, if your LTV is high, you might pay a higher interest rate, or poor credit scores will also result in higher payments.
The loan-to-value ratio
The loan-to-value (LTV) ratio is the percentage of the property’s value you’re borrowing against. For example, if a property is worth £100,000 and the borrower wants to remortgage for £80,000, the LTV would be 80%.
Lenders assess how risky a loan is by looking at the value of your property compared to the equity you own. Most lenders prefer to remortgage to people with an LTV of up to 80%.
While it is possible to find mortgages for 90%, the interest rates will be higher, and you won’t have as many providers to choose between. The lower your LTV, the better more you can save by remortgaging your property.
Yes, people with excellent credit get the best deals, while good credit still offers plenty of opportunities. However, when finding a new mortgage deal, anything below good credit will be risky to lenders.
For these reasons, you might find that your options are limited. The lenders offering you a mortgage are likely to charge higher interest rates and probably have stricter terms.
Compare mortgage deals with Believe Loans
The remortgaging process can be stressful, and finding a provider that suits your personal circumstances isn’t easy by any means. While some people search for a new deal alone, many seek professional brokers for support.
Believe Loans is a dedicated loan broker with expert mortgage market knowledge. As an award-winning service, we go out of our way to help you find the best possible mortgage deal for your needs.
Whether you have poor credit or are self-employed, our team work tirelessly to compare deals and secure the best terms.
Here’s what you get when you choose us.
Access to specialist mortgage providers
We’ve built up a strong network of loan providers in our time and are confident that we can find you an attractive remortgage deal. Whether you want to fund home improvements, buy a new car or use the money for another purpose, our partners will be able to help.
No upfront fees
As with most loan brokers, we charge a small fee when arranging your mortgage, but you won’t have to pay anything upfront, as the amount will be added to your loan.
Excellent customer service
We’re not here to judge you, and if you’ve had problems with a mortgage broker before, you’ll love working with us. Times can get hard, and you might be worried about your outstanding mortgage and have poor credit, but our service is always there to help.
Find the best remortgage deal today
There’s no time like the present to plan your financial future, and our professional mortgage brokers are just a phone call away. We offer a free consultation to all prospective clients, so you can tell us about your personal circumstances and what you hope to achieve from a new mortgage.
Please feel free to contact our friendly team. We look forward to supporting you.