Do you have an existing mortgage which is fixed for a set number of years? Do you know when it expires? Many individuals forget or do not realise when their mortgage rate switches to the standard variable rate and therefore start to pay far more for their mortgage than they have to.
Next Home Online offer a re-mortgage service where we will contact you three to four months prior to your current mortgage deal expiring and advise you on the best possible rate for you to switch to straight after your expiration.
If you have an existing mortgage and would like to consider a remortgage then please contact us at 01738 44 43 42 or email us at firstname.lastname@example.org
You may have to pay an early repayment charge to your existing lender if you remortgage.
Although remortgaging may save you a lot of money, there are costs you will have to take into account. You will need to bear in mind any early repayment charges that may apply on your existing mortgage and the extent to which these may reduce the potential savings to be gained by remortgaging. It is important to work out the repayment costs carefully, because even if you move to a new lower rate, it may be many years before you receive any real benefit.
The following costs may be involved;
Early Repayment Charges – If you have an existing fixed, capped or discounted rate mortgage or if you have a cash back mortgage there is a possibility that there is an early repayment charge (ERC) which will apply on your loan. Typically you will have to pay your existing lender a number of months interest should you wish to cash in the loan before the end of the ‘tie-in’ period.
Be careful of any overhanging ERC’s which may be levied years after the fixed, capped or discounted rate period has run out.
If you have received cash back then you may be expected to pay some, if not all, of the money you received if you move your mortgage elsewhere.
Remortgage valuation fees and costs – As your remortgage will be secured on your home, the lender will want to make sure your home is worth the amount to cover the loan and that the property is in good condition to lend on. Therefore they will need a survey or valuation to be done, and this cost will generally have to be paid by you. Some lenders however, may offer free valuations as part of their mortgage offer.
Legal fees – When you switch your mortgage lender there will need to be some conveyancing work done by a solicitor, the good news is that the work involved is much simpler than when you buy a home and so, the solicitor’s fee will also be smaller. Some remortgage deals will pay the solicitors fees for you.
Lenders arrangement fees – You should expect to pay a lenders arrangement fee. These vary from lender to lender and have been increasing over the past 12 months. The amount of the fee can be added to your loan, which seems attractive in the short term, but you need to question whether you really want to pay interest on it for as long as you have your mortgage.
Higher lending fees – If you plan to borrow a high proportion of what your home is worth, say 90% or more, you have to pay a higher lending charge. This is a form of insurance for the lender, to compensate them for the increased risk they take on when lending at a high loan to value.
Lenders Discharge fee (sealing fee) – The discharge fee is the administration fee that a mortgage lender charges to a borrower when a mortgage is repaid. For example, – at the end of the mortgage term or when the loan is transferred to another lender. It may also be called deeds fee, exit fee, redemption fee or vacating fee.
Interest or Repayment?
With an interest only mortgage, you just pay the interest, and may set up an investment to build up enough cash to pay off the actual mortgage amount at the end of its term.
Repayment is the only option which guarantees that you are actually paying off some of your debt every month.
NB: Unless you have a very good reason, repayment should be the way forward. The sooner you start paying off your mortgage the sooner you’ll finish.
Standard Variable Rate (SVR) – The lender’s variable rate (often referred to as the ‘standard variable rate’ or SVR) fluctuates and will generally follow the direction of the Bank of England’s monthly base-rate changes. SVRs are generally a couple of percentage points or so higher than the base rate. As the Bank of England shifts its rate up and down so lenders move their SVRs. But beware, lenders do not have to pass on the full move, For example : if the Bank of England cuts rates by 0.5% your lender might only change its rate by say .35%
Tracker – a tracker rate mortgage is occasionally linked to the lender’s variable rate but most commonly linked to the Bank of England base rate. The tracker follows the Bank of England base rate with a discount or a premium (or even sometimes at the same rate as Bank of England base rate) for a period of time. In this instance, any reduction will be passed on in full, which is not always the case if your rate is linked to the SVR. Some trackers, but not all, come with tie-ins.
Discount – Many lenders offer a discount from their SVR. For example, if you were offered a 1% discount off the lender’s variable rate of 5%, your rate would be 4%. It is important to note that your rate will also have the potentials to go up and down with the SVR. The period over which the discount is available will vary. You will be tied in for as long as the discount rate applies and possibly beyond.
Fixed – A fixed rate mortgage allows you to set your rate at a certain level for a given period of time. So regardless of whether the lender’s rate changes up or down, your payments remain the same. Again, you will be tied in for as long as the fixed rate applies and possibly beyond.
Capped-rate mortgage – A variation on the theme of the fixed rate above, is a capped rate. The ‘cap’ really means that there is an upper limit on the interest rate you will pay. If the lender’s SVR rises above this limit, your rate will be unaffected, just as with the fixed rate. However, if the lender?s rate falls below the level of your cap, then your rate will fall. Again, you will be tied in for as long as the capped rate applies.
Cash back mortgage – To attract your business, you may be offered a cash incentive or ‘cash back’, which is payable on completion of the loan. However, this type of mortgage may only be offered to you by linking it to the lender’s SVR.
Flexible mortgage – A flexible mortgage offers the facility to underpay or overpay or even take payment holidays. It also allows you to borrow lump sums back from your loan free of additional arrangement fees. There are often no tie-ins with flexible loans, meaning you can redeem the mortgage at any time with no penalty. A true flexible mortgage will calculate your interest on a daily, not an annual basis.
Offset mortgage – An offset mortgage takes a flexible mortgage one stage further and comes with all the flexible features described above but in addition offsets your savings – which must be transferred into an account with the lender – against the debt of your mortgage. For example, if you had £5,000 in savings and a mortgage of £100,000, you would only pay interest on the remaining balance of £95,000. The reduced interest you pay as a result of this arrangement means a shorter loan term. You will not receive interest payments on the credit balance of your savings but this means you will not pay tax on that interest either. Also, the interest you are forfeiting on your credit balance is nearly always lower than the rate you pay on debt balances. However, offset mortgages work most effectively if you have considerable savings – something that many first-time buyers might prefer to put towards a deposit. Interest rates on offsets can also be more expensive.
Current account mortgage – A current account mortgage is also completely flexible and works along the same lines as an offset mortgage. The main difference is that all balances are thrown into one big pot rather then being kept in separate accounts. You are also able to incorporate credit cards and personal loans into the pot. So, if you had a total debt – including your mortgage of £130,000 and savings of £5,000 your balance at the ATM machine would read £125,000 overdrawn. But all debt is charged at cheaper mortgage rates and all credit is offset against this debt, further reducing its cost.
Despite the possible savings available, there are some instances where a remortgage may not be beneficial. Typical examples are as follows:
- The standard Variable Rate of your lender is very competitive, and there is no cost benefit in switching to a different lender.
- Your existing mortgage may have excessive early repayment charges that will not make it cost effective to remortgage.
- Your existing mortgage amount may have fallen below £50,000 at which level the costs involved with remortgaging can outweigh any savings that may be made on switching to a lower rate.
The main reason why our clients remortgage is to save money.
Most of our clients will take out mortgages that have a tie in, usually for 2, 3 or 5 years. After this period, their rate will usually revert to the lenders Standard Variable Rate (SVR) for the remainder of their mortgage term. Most lenders SVR’s are considerably higher than the Bank Of England Base Rate and they can increase or decrease them at will.
As an Independent Mortgage Broker, Charles Cameron & Associates will research the whole market and advise you as to the most suitable product. We will also advise you on any fees associated with re-mortgaging, but sometimes lenders will have fee free options to attract your business. If you arranged your existing mortgage through us, then we will contact you 3 months prior to the expiry of your existing deal to review the options open to you.
There may be other reasons why you might consider remortgaging, these might include :-
A change in income – You may have received a pay rise, bonus, or maybe inherited some money and want to reduce your mortgage by making additional payments or paying a lump sum of your mortgage, but your current deal does not allow this.
A change in circumstance – If you change jobs, want to go travelling or decide to go back into educations then you might require a more flexible product that might allow you to reduce or defer your monthly mortgage payment.
Releasing equity for another purpose – You may want to increase your mortgage to build a conservatory, add an extension or fund other improvements to your home.
Consolidate debts – You may wish to repay other debts, such as a car loan or credit cards. Although this may reduce your monthly commitments, it is likely that it will extend the overall term of the debt and you may end up paying more in interest payments. Think carefully before securing other debts against your home.
Alter the term of mortgage or Repayment method – You may want to reduce your mortgage term for example from 25 years to 20 years or even increase the term in order to reduce your monthly re payment. You may want to switch from an interest only mortgage to a capital repayment mortgage so that you can be certain the mortgage will be fully repaid upon maturity.