While a few years ago we had the credit card “surfing” era, where many credit card users changed cards on a regular basis to take advantage of deals, we are now starting to see signs of this in the mortgage market.  It has become more common place since the authorities investigated the industry and ruled that many of the exit charges written into agreements were too expensive and anti-competitive.

 

While many mortgages still retain an element of penalties for early payment, the figures involved have been greatly reduced, opening the door to mortgage “surfing”.

Why would you remortgage?

We already touched on one of the main reason for re-mortgaging your property - to take account of new offers, there are also those who remortgage to release capital :-

Remortgaging for a better rate

If you were locked into a mortgage for say 2 years at a reduced rate of 1.99%, only to find that after that 2 year period, not only would you be returning the standard variable rate, but base rates had gone up, some customers may find themselves in trouble.  This is where many have again taken advantage of what is always a competitive market, to switch lenders and sign up for another reduced rate period.

Releasing capital

This is one of the more privileged situations in which a home owner can find themselves, a home which may only have a small mortgage, but has risen substantially in value.  This usually occurs in later life when many owners may be looking to improve their homes, buy a new car, or they may even be looking at some kind of investment opportunity.

By remortgaging their old agreement, i.e. trading it in for a higher initial loan amount, they are releasing equity from their homes.  Not only this, but mortgage rates tend to be more competitive than traditional personal loans, so there are savings on the reduced rate.  In simple terms :-

• A home owner may have acquired a house 20 years ago with a £20,000 mortgage.
• The mortgage is nearly paid off, but the house has risen in value to £150,000, meaning in theory they have £100,000 of “equity” in the property.
• By paying off the old mortgage, and taking out a new one for say £50,000 they are effectively taking out a personal loan, with their house as collateral.

As it is the older generation who may have the most opportunity to release capital from their homes, they will still need to have an income coming in to cover the new mortgage payments.

How does the process work?

In effect when you remortgage you are in theory “repurchasing” your property, therefore you need to go through the whole process, but their are factors to consider before signing the deal.

• Are there any exit fees on your existing mortgage? If so, is remortgaging still cost effective?
• Are you able to cover the cost of new payments - which although reduced from the standard variable rate, may be higher than you have been paying.
• Does the difference in rates available make it economical to remortgage?

If after checking the above factors it still looks as though the transaction may be viable, it is time to put the wheels in motion :-

Contact Your Current Mortgage Provider

While mortgage companies have a grave disliking to customers remortgaging, they have a larger dislike to losing customers.  It is therefore useful to contact your existing provider and let them know what you are thinking, and see if they can offer an attractive rate, in order for them to retain your business.

You can guarantee that the majority of them will do their best to keep you, not only for your mortgage business, but because very often you are “advised” to bank with your mortgage provider as part of the deal.  They lose your mortgage, they also lose the other add on services which they may have been able to offer you.

Check the offers on the market

Having checked the headline offers available, it is advisable to look a little closer at the terms of these discounted offers which you are considering.  Are they competitive, can you afford them and what kind of fees do they charge up front?

The mortgage market has always been notorious for “hidden” charges which can drastically increase the overall cost of your mortgage - perhaps without you realising it.

Valuation of your property

This is where you will find out just how much your property is worth, and how much you can realistically apply to borrow.  The considerations are different for those looking for equity release, as they normally have a large buffer zone between the outstanding mortgage and property value.

For those looking to remortgage to reduce their monthly payments, they may find it is not viable if their property has actually reduced in value and they would not be able to borrow enough to repay the old mortgage.  While this may sound a little unlikely, it has happened in the past and it will happen again.

Application to lender

This is the actual time when you sign up to the new agreement, ahead of the normal conveyancing checks and local searches.  If all goes well and the reports are in order you will soon be in a position to pay off your old “uneconomical” mortgage and take on a more advantageous offer.

What to look out for?

While we have discussed the fees associated with early repayment of the original mortgage, there are also other fees connected to the transaction.  These include conveyancing and search fees, legal fees and brokers fees to name but a few of the more common ones.  It is essential that these are all taken into account when considering the attractions of remortgaging.

The mortgage market has become even more competitive over the last few years, allowing many home owners to take up new and more attractive offers.  As with many areas of British finance, too many people are happy to stay with one lender throughout their lives, often missing opportunities to increase their income or reduce their out goings.

The offers are their, and more so than ever with the onset of the internet.  Make use of the information available, play off lender against lender, and try to improve your own financial standing.