Many borrowers are choosing to re-mortgage their properties to secure a new product, either with their existing lenders, or elsewhere on the market.
When re-mortgaging, it is possible to lower your monthly repayments by changing to a lower interest rate deal, reduce or increase the repayment term, switch from a variable to a fixed rate, and even look to pay off lump sums or release equity from the property.
The main point which triggers a homeowner to re-mortgage, is when their ‘initial deal period’ (i.e. the fixed or tracker rate offered at the start of the mortgage term) is coming towards expiration.
Like with purchases, many lenders offer re-mortgage approvals which are valid for 6 months from point of offer. Some may be restricted 3-4 months instead, so it is important to time the application date correctly, to ensure that the re-mortgage offer remains valid up until the point that it is required.
In many instances, the incumbent lender would reach out to the borrower to remind them of their rate coming to an end, and may well offer a retention product to secure the future business.
Normally the retention products are quite attractive, however they may not be the most competitive on the market, so it is worth exploring alternatives.
Even though by re-mortgaging to a new lender, it will normally entail a more drawn-out application, and a separate legal process with an appointed set of solicitors, if the savings are there to be had, then it may well be worth enduring, particularly if you start the process early and so have plenty of time at hand.
When a homeowner fails to re-mortgage by the end of their initial deal period, this may result in reverting onto the lender’s standard variable rate (SVR), which is typically higher than the majority of fixed rate deals on the market.
Of course, it is not just the interest rate which needs to be taken into account, but also any associated fees involved. Many re-mortgage products would come with a free valuation survey, and either a cash back sum, or access to a free legal service.
The main fee associated with a remortgage is therefore the lender’s arrangement fee (typically around £1,000). Not all re-mortgage products would come with arrangement fees, however you may expect a lower interest rate when selecting a product which does come with a fee.
So, is now a good time to re-mortgage? Well, if you are currently sat on your lender’s SVR, then it is certainly worth reviewing your options, as there may well be money to be saved.
For those approaching the end of their initial deal period, then the best time to consider this would be six months prior to the expiration date. Once a re-mortgage application is submitted, this is likely to secure the rate of interest with that provider. If, for some reason, rates come down during the application process, then it is possible to switch products with the same lender, or even start a fresh application with another provider.
As the arrangement fee is not always payable up-front, you can, if this is the case, submit a re-mortgage application and lock-in the rate, without having to incur any initial fees.
Of course, it’s best to avoid multiple mortgage applications, as this can have an impact on credit score. We saw the base rate increase from 0.25% to 0.5% in November 2017, and there have been forecasts that we will see further rises in 2018, so potentially by acting sooner, and fixing your rate for a set number of years, it is possible to safeguard against such hikes, at least in the short term.
Some people may avoid re-mortgaging now, as they plan to sell, or move home soon. That doesn’t mean that re-mortgaging isn’t the best course of action, as there are a few products out there which have no exit penalties from the outset. Most mortgage products are also ‘portable’, meaning that you can move the product to a new property without necessarily incurring a penalty. When doing so, you can also look to ‘top up’ the borrowing if necessary, to make up any shortfall in borrowing requirements.
The type of mortgage product to apply for will completely rely on your individual set of circumstances, so the right course of action would be to speak with a trusted mortgage adviser, and jointly put a plan in place to secure the most suitable product.
Capricorn Financial have over 40 advisers, with a range of specialties in relation to mortgages, including buy-to-let, commercial, international, self-employed & contractors, limited company borrowing, insurance, amongst others. Whether re-mortgaging with your existing lender, or looking to explore with other lenders, there is a good chance that we’ll be able to help.
Get in touch now to book in a no obligation consultation, and see what your mortgage options are.