What is a Remortgage and Why Do You Need One?

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1 A simple guide for Barr Financial Services is regulated by the FSA. FAS no

2 INTRODUCTION This guide hopes to help you understand what a remortgage is and why it may be right for you. If you own a home and either are coming to the end of your special deal or have an interest rate that is no longer competitive then a remortgage may be worth looking into. Alternatively you may want to make some improvements to your home or release some of the equity. This guide includes: 1. Why remortgage? 2. Your current mortgage 3. The new deal 4. The remortgage process 5. Doing the math 6. It s all about timing 7. Penalties may apply 8. Improving your home 9. Completing 10. A few years on Whilst Barr Mortgages have made every effort to ensure the accuracy of the information provided in these guides, it accepts no liability for any inaccuracies and those who rely on this information do so at their own risk. 2

3 1. WHY REMORTGAGE Firstly let s understand what means. In simple terms it is switching your existing mortgage to a new, more competitive deal, which often means with a new lender. It doesn t mean having to borrow more money or raise capital (although this is always a possibility when remortgaging). You just switch to a lender that is offering you a way to save lots of money by getting a better interest rate. The main reasons you may want to remortgage are to get a cut in the interest rate compared to what you are paying on your existing mortgage, release equity that you have built up in the property, raise capital, or to move from a variable to a fixed rate to help manage your budget. By remortgaging you can often reduce the amount you are paying per month. If this is what you wish then look at what you are currently paying and see if there are any better deals in the market. Remortgaging is generally a straightforward process and you will find that banks, building societies, specialist lenders and independent mortgage brokers all can offer you a way forward. There may be fees to pay but often you can find fee free deals. Rather than visiting all the banks, building societies, and specialist lenders or by trawling through the myriad of websites you can save a lot of time and effort by seeking the help of an independent mortgage broker. They can search through the whole market and often find deals that are simply not available to us mere mortals! 3

4 2. YOUR CURRENT MORTGAGE The first thing you must do is to find out exactly what type of mortgage you have and whether you are still in any special deal period. Even if you re still within the special fixed rate deal period it may still be worth checking to see if paying any penalties for early redemption would save you in the long run. When you have the details of the deal you currently have you will be able to calculate whether it is worth switching or waiting. If you find that you are on the lenders standard variable rate (SVR) it is likely that by switching you could get a much better deal elsewhere. Figuring out whether you would be better off by remortgaging is quite straight forward simply compare your current monthly payments with any potential new ones. If you save then you should seriously consider seeking some advice. 3. THE NEW DEAL When you start looking at new deals available to you it is wise to always ask if your existing lender can match or better them. If you work with an independent mortgage broker they will be able to do this for you and then go on to explain the benefits and disadvantages of any deal or deals you might be interested in. Make sure that your broker explains the interest rate you will be paying and, whether it is a fixed or capped rate, and how long the period that this rate will apply before moving to the lenders SVR. You should be able to see clearly the difference in what you are paying now and the new rate and your broker should demonstrate how much you are going to be saving. You must also ask to see the exact amount that your monthly payments will be at the new rate. At this time also ask to see how much the payments are likely to be when the fixed or capped rate ends and the payments switch to SVR (but remember you can always remortgage again at the end of that period too in fact as many times as you need to!) However, even though you can remortgage as often as you like you may be liable to pay redemption penalties, and you may have to pay arrangement fees. 4

5 4. THE REMORTGAGE PROCESS So you ve decided on a new mortgage with a new lender, they will need: Paperwork in support of your application, including proof of identity, income and your outgoings. A valuation survey often not as complex as a purchase but necessary all the same. Details about your home. You will need to instruct a solicitor to act on your behalf. They will deal with all the necessary legal paperwork between you and the lender. CASE STUDY - A TIMELY REMINDER! Mr and Mrs Southerland of Barnstaple in Devon bought their home in June, They took out a mortgage with The Halifax directly that offered a 2 year fixed rate that was 1% below the lenders standard variable rate. They were very happy with the rate that they secured and the cost of repayment as they needed to manage their outgoings closely. In May of 2012 their lender wrote to them to say that their deal was coming to an end and that their mortgage would revert to the standard variable rate as of June No offer was made by the lender to get them into a new deal and The Suntherlands didn t really think very much of it until they realised that their monthly repayments would be going up by over 100! The contacted their lender but were told that their was nothing that could be done about the increase as these were the terms of the loan. No mention was made of switching to a better deal with their current lender. The Suntherlands decided that something must be available that could reduce or at least maintain their payments at a level that would not cause them money worries! They didn t realise it but they were looking for a remortgage. Realising their dilemma The Sutherlands began to search the internet and found lots of better deals. However on closer inspection they discovered that many carried heavy up front fees and it wasn t often clear how to apply or indeed, whether they could. During their search they also came across Barr Mortgages. They offered an initial appointment where the advice given is FREE. They were able to search the whole of the market to find the best possible deal that fitted The Sutherlands criteria. The remortgage was another 2 year fixed rate but with a different lender and not only reduced their monthly outgoings but maintained the length of term remaining on their mortgage. 5

6 5. DOING THE MATH Saving money is one of the main reasons for remortgaging. This doesn t just apply to your monthly outgoings so we need to do the math. 1. First calculate how much you pay per month now. Write that down. 2. Second calculate how much the new monthly payment will be. Write that down. 3. Take the second from the first to give you the saving per month. Write that down. 4. Now, multiply that figure by the number of months that you will be in the special rate. Write that figure down. 5. Next, add up any valuation fees, search fees, solicitor s fees, redemption fees and arrangement fees. Write this figure down. 6. To find out whether you will make a saving now take away the last figure from the figure you got at step If you have a positive number then you should remortgage you will save money. If not then obviously stay as you are but keep checking! One day it will be worth it. 01 TOP TIP By remortgaging you could reduce your monthly repayments and have more disposable income. 6

7 6. IT S ALL ABOUT TIMING If you are coming to the end of a fixed rate or discount period with your lender you can start looking around a number of months in advance. The time it takes to arrange your remortgage will depend on whether there are any complications or delays in the process. But your mortgage broker will be able to advise on how long they expect things to take. You can arrange your mortgage a few months in advance of the end of your special rate period (as most mortgage offers are valid from three to six months depending on the lender) so that your remortgage can start the day your current deal ends. 02 TOP TIP By remortgaging you could release capital in your proerty to pay for school fees, a wedding or even work less hours! 7

8 7. PENALTIES MAY APPLY Most lenders apply early redemption penalty charges should you remortgage within the special deal time frame. It s worth checking if this applies to you before considering a remortgage. However, if you are paying a very high interest rate it could still be worth paying the redemption charge and moving to a much lower rate with another lender. Your mortgage broker should be able to help you calculate if it is indeed worth remortgaging. In most cases it s worth sticking out the special deal period and avoiding paying hundreds if not thousands of pounds in penalty charges. There may still be some charges that you cannot avoid. Most lenders charge a small fee to release the deeds or a sealing fee to close the mortgage account. There may also be all or a proportion of any cashback incentive received that the lender will require to be paid back. 03 TOP TIP If you have equity in your property you could release it through a remortgage for those home improvements you ve been thinking about. 8

9 8. IMPROVING YOUR HOME A benefit of remortgaging could be releasing equity in your home to make improvements and add value to your property. If you have considered a loft conversion, extension or other large projects then a remortgage could be a way to release the necessary funds to make these happen. Usually these types of projects add significant value beyond the capital costs and can only improve the value of your home when and if you come to sell. 04 TOP TIP Switching to a better mortgage deal could see your loan repayments reduced by up to 50%. 9

10 9. COMPLETION To be able to remortgage you will need to provide the lender with a valuation of your property. Many lenders will not charge for this valuation as an incentive for you to switch to them. A valuation survey is no where near as comprehensive as one when buying a house but it will be insisted upon by the mortgage lender and so you must comply with this request. Once the valuation has been done the mortgage company will make an assessment and produce a mortgage offer. The details of this offer will state clearly the amount they are prepared to lend, the details of the repayment amounts, the special rate and period this applies and any redemption charges that may apply. Your mortgage broker will talk you through all this and if you are happy you can instruct your solicitor to do the necessary paperwork concerning the new mortgage. That s it once all that is done and dusted you have successfully remortgaged your home. 05 TOP TIP You should consider remortgaging if you are close to the end of your special rate deal or are on the lenders SVR - it could save you thousands! 10

11 9. A FEW YEARS ON Remember, you are in control of your mortgage. Every time your special deal term is coming to an end you should look at whether it would pay to remortgage. Simply go through the same process or better still choose a mortgage broker that will call and remind you about remortgaging towards the end of your deal! By remortgaging, when it pays to do so, you could end up saving thousands of pounds across the lifetime of your loan. For more information or to arrange an appointment with one of our mortgage advisors just call Remember, we don t charge you a penny unless you choose for us to help with your remortgage. Arrange a call back to discuss your remortgage here >> 11

12 Barr Financial Services Bridgeland House 8 Bridgeland Street Bideford, Devon EX39 2PZ Tel: info@barr-fs.com Your home may be repossessed if you do not keep up with repayments on a mortgage or any debt secured on it.