Given that your mortgage payments will likely represent your biggest monthly financial outlay, it stands to reason that any way of reducing them could go a decent distance to improving your quality of life – or at least free up some cash that will always be handy for something else. Remortgaging – the process of switching to a new mortgage deal – doesn’t have to be as daunting as you might initially think. Here are our easy-to-understand steps for achieving it:
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Familiarise yourself with your present mortgage deal
We’re sure a lot of savvy readers will be rolling their eyes at this, but for the benefit of some of the rest of you, we really do have to start with the basics. In any case, it’s amazing just how many people don’t even know basic details including their current mortgage rate, exactly how much they’re paying per month right now, or what’s left of their loan to be repaid. So if we were you, we’d definitely check those details.
There is also for other information that is important to consider. Do you know whether there are any penalties for early repayment, for example, or even what type of mortgage you have? It might be a fix, discount, tracker or ‘standard variable rate’ (SVR) mortgage, and naturally, different types of mortgages have different implications.
You should also make sure you definitely know the length of your mortgage’s repayment term – for example, 25 years or 30 years – so that you’re aware of exactly when your loan will be fully repaid. Oh, and what about the loan-to-value, or LTV? This figure refers to the proportion of your home’s value that is borrowed – so if your property is valued at £100,000 and you have an £80,000 outstanding loan on it, that means your LTV will be 80%.
The further you can reduce your LTV, the better the deal you can expect to get when remortgaging1. What’s really important here is your home’s current value rather than the price agreed when you bought it. If your property’s value has gone up, that might mean a better LTV, which in turn will help you access the most competitive deals.
Are you on an SVR? If so, now might be the time to act
While interest rates may have been bumped up lately, they’re still at historic lows2. Whether you are on a fixed or discount rate, there may still be scope for remortgaging to save you money.
If your mortgage is an SVR one, though – and that’s the case for about four in 10 of you – there’s especially strong potential for you to massively reduce your loan payments by as much as hundreds of pounds a month, and thousands of pounds a year.
Your circumstances will obviously need to be right to make the best deals possible – think a solid credit score and holding more than 10% equity in your home. Nonetheless, the rewards can be amazing, with some new cheap deals offering a rate many times lower than the 4.9% that is typical of today’s SVRs3.
Then, it’s time to do some shopping around
As with any other deal hunt you may embark on, it makes sense to check price comparison sites for remortgage offers once you have ascertained your current mortgage rate. The first thing to do is find out if you could save money by remortgaging with your current lender. There is no point switching to a different lender and incurring set up fee’s that could be thousands of pounds if your current lender can offer you a competitive deal.
If you’re sure you want to move to a new lender then its time to compare the best deals available in the market. Firstly check out our choice of the best deals available in the UK on our Compare Mortgages page. Then call us on 01274 271 599 for free, impartial mortgage advice. We can help you find the best deal in the market but we’ll need some details from you including your home’s value and how much you wish to borrow before we can provide you with best deals for your needs.
A few words about those fees…
We’re glad we’ve got onto the subject of mortgage fees, as it’s definitely not just the headline rate that you will need to contemplate when you are looking at a given remortgage deal. You might not have realised, in fact, that the fees to set up a new mortgage can run into thousands of pounds4.
This is an even more important point to make, given the trend over the last 15 years or so of many lenders inflating their fees to artificially lower rates. So while you may have had an understandable reason to feel aggrieved at an ‘arrangement fee’ of £250 back at the turn of the century, these days, about £1,000 is quite typical.
Bear in mind that the smaller your mortgage is, the greater the impact such fees will have. A two-year fixed rate on an £80,000 mortgage with a 1.59% rate and £300 fee will cost you less over the two years than a 1.29% rate and a £975 fee.
At a time of low interest rates, overpaying might be an idea
As far as money-saving strategies go, overpaying seems a little counterintuitive at first, given that in the short-term it involves you voluntarily giving up some of your disposable income. However, the longer-term savings can be hefty, even running into the thousands, as you will pay off your outstanding loan faster and thereby reduce the total interest that you would have otherwise had to pay over the course of the loan5.
Let’s imagine, for instance, that you still have £200,000 to pay on a 25-year mortgage at a rate of 3.5%. If you are currently paying £1,000 a month but decide to start overpaying by £50 each month, your savings in interest alone over the mortgage’s lifetime would be £8,211.
Seek advice from a professional
This article is not intended to be, nor should it be construed as financial advice for your specific situation.
So if you are serious about remortgaging, we would urge you to get in touch with an independent and qualified mortgage adviser who can help you consider all of your options, so that you can make an informed and responsible choice on any new loan deal.
1 MoneySuperMarket.com Your Mortgage: What Does LTV Mean & Why Does It Matter? 2 ThisIsMoney.co.uk What Next For Interest Rates? Bank Tipped To Hold For Most Of 2019 3 Which.co.uk Standard Variable Rate Mortgages 4 MoneyAdviceService.org.uk A Guide To Mortgage Fees & Costs 5 Money.co.uk Should I Overpay On My Mortgage?