What Is Re-mortgaging?
In the same way that we shop around for the best deals on mobile phone tariffs, gas and electric rates and car insurance, it is important that you are aware of when your current mortgage term expires and start to look for new deals 3-4 months beforehand. In fact, gas and electricity rates are a great example for mortgages. Many suppliers will offer you a fantastic initial deal to win your business, hoping that you forget to shop around at the end of this deal. At this time, you will go on to the ‘standard’ or ‘default’ tariffs – usually the most expensive rates on offer.
Mortgages work in a similar manner. At the end of your fixed term, usually, two, three or five years, if you do not re-mortgage, you will go on to the ‘standard variable rate’ which can be up to 3% higher or more. If 3% does not sound much to you, a recent study conducted within the last 12 months shows that UK households can save up to £4,500.00 each year by moving off of their lenders’ standard variable rate.
Are There Any Benefits Of The Standard Variable Rate?
There can be some advantages of going on to your lender's standard variable rate mortgage, such as:
- You will not be charged any arrangement fees when moving on to a standard variable rate mortgage
- You can overpay your mortgage and/or clear your mortgage without having to pay any fees
- If interest rates go down, your mortgage repayments may decrease as well. (Or they may not if your lender decides not to decrease their rate accordingly…).
- If you are selling your home, it may better to go on to the standard variable rate for a couple of months and then re-mortgage when you are in your new property.
What Are The Disadvantages Of The Standard Variable Rate (SVR)?
- SVR’s are generally not as competitive as fixed-term mortgages, often by up to several percentage points, meaning you will likely be paying a higher interest rate on your outstanding mortgage value.
- Potentially, your mortgage providers standard variable rate can increase and decrease over time, making it harder to budget your monthly bills.
What Are The Benefits Of Re-Mortgaging?
As mentioned previously, there can be a significant difference between a lenders standard variable rate and a fixed-term deal, which can potentially save you hundreds if not thousands of pounds per year. In Northern Ireland specifically, a recent survey by Trussle showed that in Northern Ireland, where the average house price is £137,000, the average saving on remortgaging after an SVR is £1,871.00 per year.
As many as two million people in the UK are currently on their lender’s standard variable rate, having been automatically switched to this rate after their fixed-term deal expired and they did not re-mortgage on to another deal. But whilst saving money is obviously a compelling reason to re-mortgage, there can be other benefits available…
Pay off your mortgage sooner – most lenders limit the amount you can overpay (I.E. additional payments over and above your normal monthly mortgage repayment) to approximately 10% of the outstanding value of your mortgage, per year. Re-mortgaging can enable you to pay off a larger amount of your mortgage without incurring any fees or penalties. Even a moderate overpayment can have a significant impact on your monthly mortgage fees, as the smaller the value of your mortgage amount, the less interest you will have to pay.
Get a better deal – if your home has increased in value over the period of your current mortgage and/or you have been able to make overpayments on your mortgage, then you will have more equity in your home. Owning a larger share of your property can make you eligible for more competitive mortgage deals that will save you money. Either way, there will normally be a better rate available to you that will save you money over the standard variable rate.
Raise money from your home – many people raise money from their home to carry out home improvements, including extending your property, rather than moving house. The money can be used for other reasons, such as to buy a new car or to pay your child's education fees. You can even use this money to consolidate other debts (loans and credit cards) into a single repayment at a lower interest rate. Just make sure to discuss the figures carefully with your mortgage advisor to ensure this is financially the right option for you. Whilst the interest rate of a mortgage may well be considerably lower, the repayment term of a mortgage is often 20 to 30 years.
When Not To Re-Mortgage
There are some situations, where it may not be advantageous to Re-Mortgage, as you may not be in the strongest position to negotiate the right deals from lenders. Here are some situations to consider.
When you have a large early repayment charge – if the charge to get out of your current mortgage deal (called an early repayment charge) is too high, then it may wipe out any potential savings you can make by switching to a lower rate mortgage policy. This obviously makes no sense to switch at this time. You could talk to one of our of Mortgage Advisers to see if you can switch to a different deal with your current lender (this is called a product transfer) which may bypass or reduce your early repayment charge.
Your financial circumstances have changed – there are many ways in which your financial position may have changed since taking out your current mortgage deal. You may have gone self-employed or had your hours cut back at work. Maybe one of you has gone part-time to better manage a family situation. It could even be that the value of your home has decreased, meaning that your mortgage amount owed is a large proportion of the value of your home. All of these situations can affect a lenders willingness to offer you a mortgage and how good a deal you can achieve.
You have had credit problems since your last mortgage – since the credit crunch in 2007/2008 and stricter mortgage rules that were introduced in 2014, lenders are a lot more selective about who they will lend to. Not only must they see evidence of your income, the Financial Conduct Authority (the regulatory body for mortgage lenders) also requirements them to assess your affordability for the mortgage deal they are offering. It may only take one missed or late payment on a credit card, loan or utility bill to significantly impact your chances of gaining a top mortgage deal. If you are worried about the above, talk to one of our Mortgage Advisors who can guide you through how to check your credit file and how to get your credit history back on track
Things To Consider When Re-Mortgaging
Mortgage comparison calculators can be a great place to start when looking at options for your next mortgage. Try our mortgage comparison tool to get an idea of the different choices available to you and which may be the right choice for your situation.
Do bear in mind that many mortgages can come with fees attached, which can vary greatly depending on the deal on offer. Look out for early repayment charges, lender’s arrangement fees, valuation and legal fees and higher lender charges if you are taking out a mortgage that is a significant percentage of the value of your home.
It’s also important to remember that quotes shown on any mortgage calculator, ours included, are the best estimate. In recent years, mortgage lending has become as much about your financial outgoings and credit history as it is about income. So until you have gone through the process of applying for a mortgage to the point where you receive an actual mortgage offer, the rate and terms may be different from initial expectations.
The Importance Of A Good Mortgage Advisor
If you have read this far, well done! You can see that in most cases, re-mortgaging is a financially beneficial option compared to going on to a standard variable rate mortgage. But whenever you are making decisions about sizeable sums of money, you need to give the choices careful thought.
There are different methods available to consumers looking to arrange a mortgage. If you have a bank account and are happy with the service you have received, you can go directly to your bank/building society. They should know your financial situation well and will be able to tell you about their own range of relevant mortgage products. However, you will need to have the time and effort to then compare this advice to other mortgage providers to ensure it is the right option for you.
The alternative option is to visit a mortgage adviser (sometimes referred to as an independent mortgage broker). They are able to search through a range of mortgage products that will meet your specific needs and situation using their in-depth knowledge of the market. When choosing a mortgage adviser, the first thing to understand is whether they are tied to one lender, of whether they can search mortgages from a wide selection of lenders and products.
All mortgage advisers MUST give you;
- A breakdown of any fees they charge up-front for their services and whether they are paid a commission.
- Mortgage illustration documents (usually called a keyfacts illustration) once they make a product recommendation
The benefits you receive in exchange for using a mortgage adviser are generally;
- They will run through all of your relevant income and expenditure to make sure you can afford a mortgage that suits your need
- They may have exclusive mortgage deals only available through the network they work with
- They often complete the paperwork for you (or help you to complete it) so your application process can be dealt with faster
- They will look at all of the fees and additional benefits of the mortgage product, not just the interest rate
- They should be able to identify and recommend mortgages that you will be accepted for
- You are covered by and can complain to the Financial Ombudsman if something goes wrong.
Mortgage Solutions NI has been trading since 2005 and currently have over 70 mortgage advisers across 16 branch locations. In 2019 we helped over 4,000 people complete mortgages in Northern Ireland, totalling over £400 million in lending. We also protected over 2,300 customers with the right insurance policies to provide peace of mind should the worst happen.
Mortgage Solutions can search over 2,000 mortgages from over 50 of the top UK lenders and have access to special mortgage deals not available elsewhere.
Please do not hesitate to contact us today to arrange a meeting or call with one of our experienced mortgage advisers, they are always happy to help with any questions!