Depending on how long your mortgage deal lasts, it is fairly likely that if
you have a home loan, you will at some point need to remortgage to a
different deal in order to avoid much higher repayments on your lender's
standard variable rate (SVR).
But remortgaging is not as simple as a straight swap. There are usually fees
involved, and your loan will be subject to a new property valuation. Follow
our guide, below, to make the process as pain-free as possible.
Think ahead
It is possible to book a mortgage rate with a lender up to six months in
advance. This can be useful if you think that interest rates are likely to
go up by the time you come to remortgage, or if the mortgage market looks
volatile. Otherwise, brokers recommend that six to eight weeks beforehand
should leave you with plenty of time to secure a new loan before the other
one expires.
Research the market
Finding the best rates requires a three-pronged attack. Ideally, you should
ask a broker, as well as approaching two or three lenders directly yourself
and using price comparison websites such as Moneyfacts.co.uk
and Moneysupermarket.com.
There are also a number of online mortgage brokers, such as mform.co.uk.
Reduce your loan size
If you have a mortgage worth more than 75 per cent of your property's value,
you will miss out on the best rates on the market. However the lower the
proportion you owe, the better the rate you can get. At the end of the
current deal, it is worth using any spare savings to pay off some of the
loan. This will improve your chances of getting a competitive rate.
Alternatively, most lenders will allow you to pay off an extra 10 per cent a
month.
Choose wisely
Your circumstances may have changed since the last time you took out a
mortgage, so it is important to reassess what type of loan you need based on
your new circumstances. If you were previously on a tracker rate but have
your budget squeezed for instance, perhaps you would be better off taking a
fixed rate this time around? Or if you are planning to move soon, maybe take
out a shorter-term deal for two years? Anyone who has managed to build-up
some savings could benefit from an offset
loan, which reduces the interest you pay on the mortgage, thus decreasing
your mortgage term.
Don't waste time
Waiting until you are already paying your lender's SVR can be a costly
mistake.
The SVR is the default mortgage rate that lenders charge all borrowers when
they come to the end of their lower rate deal. It is usually much higher
than lenders' rates on deals, so although you may have to pay a fee to
remortgage, it is almost always cheaper over time to pay this rather than
remain on the SVR.
The average SVR is currently 7.11 per cent, around 1 percentage point higher
than average fixed rate deals. On a £150,000 loan, repayments on an SVR
would cost an extra £94 a month.
Be decisive
Depending on market conditions, you can have anything between a few weeks or
just a few seconds to decide whether to take a deal. This is because lenders
offer you a decision in principle first. This offer is not binding - the
lender is only committed to offering it to you once the application has been
received.
Sometimes, demand can be so high that a lender is able to offer you a deal in
the morning, but by the afternoon, that deal has vanished and been replaced
with a higher rate. This is where having a broker, who usually has a
relationship with lenders, can come in handy.
Mortgage offers come with expiry dates too, so check when it runs out, or else
any delays could mean that you have to go through the whole application
process again a few months later.
Five websites
Financial
Services Authority - Mortgages made clear
London &
Country - How much will it cost? - mortgage calculator
Moneyfacts - price comparison website
Moneysupermarket.com - price
comparison website
Mform - online mortgage finder
Five news stories
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