Remortgaging your home can be a great way to save money and take advantage of lower interest rates or to protect yourself from the uncertainty of future interest rate rises. The Bank of England have been raising interest rates consistently since early 2022 but did you know the banks and lenders have been reducing their rates in recent months as they compete with each other for your business? It’s important to understand the process of remortgaging to obtain a better interest rate in an effort to save money or protect against future interest rate rises and secure a successful remortgage. In this blog post, we’ll be discussing 6 essential steps to take before remortgaging your home.
Introduction to Remortgaging
Remortgaging your home is essentially taking out a new mortgage to replace your existing mortgage, that's it. The new mortgage could be with the same lender or a different lender - when its with the same lender its known as a 'Product Switch'. The purpose of remortgaging is to take advantage of a better interest rate, to get access to additional funds or to protect yourself against potential future interest rises and provide some peace of mind for you the borrower. There are several things to consider before remortgaging. It’s important to do your research and make sure you are making the best decision for your financial situation.
1. Analyze Your Current Mortgage
The first step to take before remortgaging your home is to analyze your current mortgage. This includes looking at the interest rate, the length of the mortgage term, and any other fees associated with the mortgage. You should also look at the payment schedule and determine how much you are currently paying each month. This can help you determine if a remortgage is the right choice for you. According to the Office for National Statistics, 86% of mortgage holders in the UK are on a fixed rate mortgage. If you are reading this you are probably one of them and your current fixed interest rate may be coming to an end.
When analysing your current mortgage determine:
- What your current rate is? If you are on a fixed rate, how long is left until that fixed rate (sometime called an introductory rate) comes to an end? When that rate ends the bank will usually move you automatically on to their Standard Variable Rate or SVR. This rate is usually the current Bank of England interest rate plus some amount of interest the bank adds to make a profit. The SVR can be very expensive for borrowers who do not act. The Financial Conduct Authority did research on the savings borrowers could earn by avoiding lenders' default SVR and remortgaging. The FCA estimated a saving of over £1000 per year could be made by remortgaging - this has probably increased with recent BOE interest rate rises!
- How long does your mortgage and the current interest rate last for? If you are on a fixed interest rate its unlikely to be for the duration of the mortgage. Most people take their mortgage out for 25+ years. When they buy their home with a mortgage most borrowers in the UK have a 2 year or 5 year 'introductory rate'. Check these details on your mortgage statement or phone your lender if you do not have a statement to hand - the lender will answer all your questions about your current mortgage. When examining the duration of your current mortgage its important to check when the introductory rate ends. It may be months away, or it may be years away or it may already have lapsed and you are now on the lender's default SVR rate. This will give you an idea of when you need to act.
- My fixed rate mortgage is coming to an end soon, what do I do? Its time to act. We recommend speaking to a Whole of Market mortgage advisor to see what is available in the market - you do not need to wait until your rate comes to an end to do this. In fact, you can remortgage your home when still in your existing mortgage. The lender you are with may charge you a fee known as an ERP (Early Repayment Penalty) to exit from your existing mortgage but towards the end of the life of a fixed rate mortgage this can be a small amount relative to the savings made from avoiding a Standard variable rate and taking advantage of a more suitable mortgage available in the market with another lender. This is why we recommend speaking to a Whole of market mortgage broker - (you can connect with one of these experienced brokers in your area through our platform - click here to begin).
2. Evaluate Your Financial Situation
The next step is to evaluate your financial situation, online mortgage brokers using the Mortgage Propeller platform can help with this. Consider your income and expenses and determine if you can afford the monthly payments associated with the repayments on the current mortgage when the introductory fixed rate ends and when speaking to an broker, the monthly repayments from the new mortgage. You should also consider any potential changes to your income or expenses in the future. Share these with your mortgage advisor as they could impact the cost and type of mortgage you would switch to. For example, if you knew you had a lump sum due in the near future you may remain on a SVR for a period of time so you can use that lump reduce to reduce the amount you owe, putting you in a better position to remortgage and reduce your monthly payments. Once you have a better understanding of your financial situation, discussed it with a mortgage expert and considered your options, you can decide if remortgaging is the best choice for you.
3. Research Interest Rates with an FCA Authorised Mortgage Advisor
The next step is to research the market and consider existing mortgage products, their interest rates and associated fees. This step alone is why you should consult with a mortgage and protection advisor on the Mortgage Propeller platform. All mortgage advisors on the platform are FCA Authorised and will provide a free consultation to borrowers connecting with them through the Mortgage Propeller platform. On a video call they can show you the 1000's of mortgage products they have access to in minutes. This would take borrowers many hours and you'll wouldn't have access to all the products in the market as many lenders will only lend through a mortgage broker.
You may also see an interest rate that looks attractive advertised by a lender but you must consider the fees associated with that product as these can add up. Lenders advertise low interest rates but these may have particular requirements attached so you'll need a broker to help you confirm if you qualify.
4. Shop Around for a Broker
Yes! you should shop around for a mortgage advisor/broker. The Broker is king in our opinion. Better than a lender that only has the lender's interests in mind and better than 'robo advisors'. But not all brokers are equal. We recommend you check out their VouchedFor reviews. For example this is Laura Gorman - she is an award winning broker with 150+ 5 star reviews on VouchedFor, specialising in remortgaging and home buyers needing a little hand holding. Laura is on the Mortgage Propeller platform*. The benefits of Mortgage Propeller's platform, aside from speeding up the mortgage application process, is that we have done the 'shopping around for you'. We have chosen Brokers covering England, Scotland, Wales and Northern Ireland that meet our high 5* standards, have the experience required and are happy to help borrowers outside of normal work hours.
Even if you do not want to get your mortgage via a broker on the Mortgage Propeller platform, please do find one rather going direct to a lender. Take the time to research different brokers and compare their services and fees to ensure you are getting the best deal for you. Its easier than ever now to find an online mortgage advisor and we've done that hard part for you.
5. Use Professional Advice not your know-all uncle!
if you are like me, you'll have a relation who claims to know everything about everything. I have a know-all uncle who told me "you need to buy a 'heavy car' for reliability, the moon landings were staged and that you need to go to a bank to get a mortgage and speak with the bank manager". Eh, no thanks.. Get professional advice. Whether its financial advice for saving for the future, mortgage advice for saving on a remortgage or protection insurance advice to protect your home and family - get a professional to help and not the know-all relative.
Mortgage brokers can provide the range of options available across all of the market for remortgage needs but also your insurance needs whether it be life insurance, critical illness, income protection etc. Saving on necessary insurance costs can improve your mortgage affordability and enable you to shorten the life of your mortgage. At the end of the day its all money going out of your pocket and in these times of rising costs every little helps. Almost all professionals (everyone on Mortgage Propeller does) offer a free consultation so there.is nothing to lose. You can speak to the know-all uncle of course. Just not about your financial needs or, eh, moon landings.
6. Make a To Do List
Once you have done your research and consulted with a professional, it’s time to make a to do list. This list should include all the steps you need to take in order to complete the process of remortgaging your home. If you have chosen a broker they'll help you with this but you'll need certain documents (e.g. existing mortgage statement, ID's for the new lender) and you'll want to check your credit file, make sure there are no blips on it and address any you find. We'll do another blog on the to-do list of a mortgage and link it but working with an advisor and using the Mortgage Propeller platform will speed all this up. If it turns out a product switch is your best option, a lot of this to-do list work is removed. In your current lender's eyes they have done all the necessary compliance and its just a change of the type of product you are on. A mortgage advisor can do this very quick!
Hopefully this short blog has provided some help and insight into what is involved in a remortgage. Remortgaging your home is a great way to save money and take advantage of lower interest rates or protect against rising rates. Its difficult to save money in the current climate. Taking professional advice over the life of your mortgage could save you £10,000's over the life of your mortgage. Its worth taking that advice as soon as possible..
The process can seem daunting - no one wants a mortgage, we all wanted a home - but it’s important to understand the process and all the steps that you must take in order to ensure a successful remortgage. In this blog post, we discussed the essential steps to take before remortgaging your home, including analyzing your current mortgage, evaluating your financial situation, researching interest rates, considering your payment options, shopping around for a broker, using an online mortgage broker through Mortgage Propeller, professional advice, and making a to do list. By following these steps, you can make sure that you are making the best decision for your financial situation and get the most out of your remortgage.
*Laura Gorman is an FCA Authorised Mortgage and Protection Advisor with MortgageJoy. MortgageJoy is a sister company of Mortgage Propeller.
Image Source: FreeImages