Remortgaging Guide

Introduction

It's certainly worthwhile as homeowners and landlords may find they can save hundreds, or even thousands, of pounds a year if they remortgage their property or get a better deal from their present provider or simply gain peace of mind that the deal they struck is still a good one.

What is also certain is that more and more homeowners are now switching lenders. In fact, so much so that the property finance industry refers to such savvy borrowers as 'rate tarts'.

Definition of Remortgage

Remortgaging is the replacement of an existing mortgage with a new one. You may do this to save money. This might be possible by switching to another mortgage product with the same lender or by switching your business to a competitor. Remember, if you switch lenders, the saving you make on the interest rate you pay may be partially or wholly eaten up by the transaction charges associated with moving your loan.

There may be redemption fees and reservation fees demanded by your old and new lenders. The old lender may charge you a penalty while the new one an arrangement fee. The new lender will want to value the property just as your old lender once did. So there'll be surveyor fees, not to mention some conveyancing. And that means solicitors are likely to get in on the act once again. So, if you're considering a remortgage, do your sums carefully. You may find yourself facing the equivalent of several months mortgage payments, wiping out the benefits of remortgaging.

Reasons for Remortgaging

Apart from the obvious potential savings to be made there are other reasons why you may wish to switch. For example, some people may be stuck with a mortgage term that runs on longer than the day that they want to retire. But not many people will have built up a pension fund large enough to provide enough income to pay for their chosen standard of living and keep paying off a mortgage. It may be that they need to remortgage to reduce, or even increase the length of their mortgage term.

So if you've been thinking about remortgaging, read our step-by-step guide to find out to go about it.

Step 1: Instant Current Valuation

Thanks to the dramatic rise in house prices over the last few years, the chances are that, the value will have increased significantly. The current market value of your home or investment directly affects the deals available to you.

Therefore, before you start to look for a better deal it is important that you already have a good idea of what the property is worth. Instant current valuations are available and are calculated using the best house index methodology currently available. This valuation is not a substitute for a RICS registered surveyor who would visit and re-value your property in the event of remortgaging but they are a very accurate ceteris paribus valuation. That is, they are made assuming that no substantial improvements or degradations have affected the property since the initial price paid date. Adjustments to the valuation can be made to this effect. For example, the final value can be increased by the market rate of refurbishment spend.

Step 2: Your Current Lender's Offerings

Take a look at your current lender's website and browse through it. Pretend you're a brand new customer looking for a mortgage. Most of lenders provide calculators that will enable you to enter a few details so they can give you an up-to-date quotation for the sort of mortgage they might be prepared to give you on the basis of your earnings and their current rates. Enter the amount of your current mortgage (if you've paid off some of it, make sure you only enter what you've got left to pay) and the remaining term, and see what it churns out. You may find that you are paying far more each month for an identical loan over the same period than a new customer would!

Also look to see if your lender has an online calculator for remortgages. These aren't really intended for you - they're for new customers who might be thinking of switching over from their current lender. See what comes up when you enter your details in this particular calculator.

Does your current lender appear to be offering new customers a better deal than the one you have? - if so, you have now established a bargaining position to renegotiate your present terms. However, before you pick up the phone to you present lender, spend a little more time to shop around the other mortgage lenders. You may find there are even better deals on offer or at least further strengthen your negotiating stance with your present lender.

Step 3: Deals From Other Lenders

Not that long ago, there were no such things as fixed or offset or discount or flexible mortgages. Most people were on the standard variable rate because that's all there was on offer. In fact, rather a large number of people are still on the standard variable rate because it hasn't occurred to them to look elsewhere for a better deal. And all the hassle involved in buying a house in the first place seems to put people off trying to remortgage. But it's not as hard as you think.

There's a huge choice of mortgages, now that lenders have been forced to become more competitive and what's more - they want you. So take a look around and you will soon get a idea of what deals are available to you in your current situation.

Step 4: Negotiate A Better Deal

So now you've put out a few tentative feelers to see if lenders would be happy to take you on if you decide to move your account. Armed with your newly acquired mortgage market information, it's time to contact your lender. A polite letter is probably best, in which you outline the new deal you would like, and, if necessary, a follow-up phone call. With a bit of luck and patience, your present lender will offer you the opportunity of switching your mortgage to the one you actually want, rather than losing your custom.

Until recently, mortgage lenders found they were losing customers because of their intransigence. And losing customers meant losing money. Nowadays, many of them have departments specially set up to deal with current customers who are thinking of transferring to another lender, and they have the authority to offer these customers special deals on a case-by-case basis - especially to long-standing customers. They're sometimes known as 'under-the-counter' deals.

The benefit of staying with your current lender is that you hardly have to do anything. There are little or no legal or valuation fees to contend with, as that was all paid for when you first bought the property. They simply draw up a new contract and you sign it.

Important Considerations

There are obviously some caveats to this procedure. You may, for example, be locked in to your current mortgage with heavy redemption penalties to pay should you move, which means they've got one up on you. So you will need to do a few sums to see if the savings you'll make are worth it. Also, your current lender may demand a rearrangement fee to change your account details. This can be in the region of £250, so if you're in a strong position then it's probably a good idea to challenge this. If they really think they're going to lose you, they might reduce or even waive the fee altogether.

If you got the better deal, congratulations! You have just saved yourself money every month on your mortgage with the least hassle possible. If you were refused and you think a better deal can be had, then it's definitely time to look elsewhere - it's time to turn to the professionals.

Step 5: Ask a Mortgage Advisor to Find the Best Remortgage Deal

This is where a qualified independent mortgage advisor comes in handy - he or she can talk through your financial situation and advise on various options. This way you can see clearly what the immediate impact of remortgaging might be and, most importantly, avoid any future repayment difficulties should interest rates begin to rise. With many thousands of mortgage options available it is in your interest to get some professional impartial help and advice.

Why Independent Advice Matters

'Impartial' is the key word here - because although many banks and building societies would be pleased to offer you their mortgage services, the only lending services they are likely to recommend are their own. Independent mortgage advisors look at the whole universe of products before making a recommendation - not just one supplier. So, although you might think you've done well with a traditional bank or building society product, the chances are you could have found a more suitable mortgage for your circumstances.

Costs of Switching Lenders

If you switch to a new lender you will face the same sort of costs that you would if you were buying from scratch, apart from stamp duty. Not only will you have the usual conveyancing and valuation fees - but your old lender may well charge you a 'closing down' fee. An independent mortgage advisor can help you identify lenders who will pay some of these costs for you. As an enticement to encourage new customers, some lenders offer to pay the legal or valuation fees - or else they'll offer a cashback, which will cover all or part of the costs of switching. More importantly an independent mortgage advisors can provide you with the figures to decide whether it's worth your while in the long term - particularly if you have stringent redemption penalties.

One thing to watch out for is that, in the month that you switch, your final payment to the old lender and your first payment to the new may overlap. Make sure you've got the money to cover this situation should it arise.