The main reason to remortgage is to save money. Simple as that. Once your current lender’s introductory offer has ended, you’ll be put on their standard variable rate (SVR) – which is a lot more expensive than a fixed rate product for example. It is therefore worth looking around for better deals as the potential savings are huge! As part of your remortgage, you will have other options available to you such as releasing equity from you home to invest in a buy to let property or even doing some debt consolidation.
Get ready to remortgage
There are 3 checks you need to do on your current mortgage
1. Will you be paying an early repayment charge (ERC)?
If you’re still within the initial introductory offer period, say on a fixed rate deal, you’ll have to pay a penalty. This is known as an early repayment charge (ERC) and is payable to end your deal early. The fee will depend on how far along you are but its worth noting the below:
- Is there a charge?
- How much is it?
- What date does it apply until?
Once you’ve understood this, you’ll be able to take a view on whether its worth remortgaging with another lender by looking at the cost saving you can make on your new mortgage against the fee you’ll need to pay on the ERC. This is a key piece of analysis I tend to do for clients considering a remortgage.
2. Will you be paying an exit fee?
This fee is for your lender to release the deeds to your solicitor and isn’t usually as big as the ERC. It typically ranges between £50 and £200. Your lender can only charge you this if they told you about it upfront so make sure you check your mortgage offer documents.
3. What is your current balance?
It’s worth checking to see how much you currently owe your lender. This will be helpful to accurately prepare your remortgage application.
How much can you borrow?
This depends entirely on if you are looking to remortgage your residential home or a buy to let property. For your residential home, lenders will calculate how much they are prepared to lend to you by doing an affordability assessment. This is where they assess your income against all your commitments, such as credit cards and loans, and if you have any dependents. The general rule of thumb is 4.49 x annual salary but this is reduced if you have commitments and dependents in the background. If on the other hand you are looking to remortgage your buy-to-let property, the amount of lending is based on the rental income your property achieves. Some lenders also require you to earn a minimum income – but not all.
How can I get a better deal on my remortgage?
Trying to get on a lower loan to value (LTV) product is the best way to get a better deal. LTV is calculated by taking your mortgage balance and dividing it by your property’s value. You’ll be able to get a sweeter deal with a 60% LTV product compared to a 80% LTV product. There are usually 60%, 75%, 80% and 90% LTV products but this depends from lender to lender. If you are close to the threshold, it’s worth considering to pay off some of your mortgage before you apply for your remortgage.
