In simplest terms, a remortgage is the process of moving your mortgage loan from one company and product to another. The primary purpose of a remortgage is to save money on your monthly payments and on your original home purchase.
Because your home is probably the biggest investment you will ever make, it logically follows that finding a way to save money on this investment will make a significant difference in your monthly budget.
This is particularly true in an economic climate like the current one, where rates have dropped to about the lowest possible levels.
However, before you contact your lender to find out what your remortgaging options might be, it is important to educate yourself about the remortgaging process and the products available.
Remortgaging is not right for everyone, and not every remortgage loan will meet your specific financial needs. By getting savvy to the possibilities in remortgaging, you can find the right product for your budget and save a significant amount of money in the process.
Reasons to remortgage:
To save money
•If you’re coming to the end of an existing deal and about to go onto your current lender’s Standard Variable Rate, it’s certainly worth checking for other deals. You many find one that offers a better rate and reduces your monthly payments or choose one that helps you to clear your mortgage more quickly
To invest in your current home
•If you’ve outgrown your current house but really don’t want to move, then you can remortgage to raise the funds. You may find that it's cheaper to remortgage to raise money for an extension than to move home if you add up all the removal costs, stamp duty etc.
To release equity in your home
•If you’ve lived in the same house for a while and have some equity built up, then remortgaging could allow you to get access to that money.
To consolidate debits
•Remortgaging to consolidate debts. This is cheaper than taking out a personal loan or using credit cards. This is because interest rates on mortgages can be as low as 4% while the cheapest personal loan rates are about 7% and standard rates on most popular credit cards are as high as 17%. Therefore to consolidate bills, personal loans and credit cards, all you have to do is increase the size of your mortgage and use the money that you've raise to pay off your more expensive borrowings.
Costs to consider:
•Early redemption charges are sometimes levied if you repay your loan within a certain period. They are often found on deals with a special offer rate upfront - for example a fixed or discounted rate - and are designed to help the lender recoup the costs of setting up the deal and secure their profitability in the event of the mortgage switching.
•On top of redemption fees, most lenders charge a sealing fee and/or a fee for releasing the deeds, which can add up to around another £100.
•The total legal costs should be much lower than when you bought the property, as there are no contracts to prepare and there is no stamp duty to pay. However, you should still budget to spend £300-£500, unless your new deal comes with the legal costs paid by the mortgage company.
How much can I borrow on a remortgage?
How much you can borrow on a remortgage will be based on several factors, these are, your financial circumstance, your income, the lenders multiple. The lenders multiple is usually around 3 – 5 times the salary you earn and this will depends on the lender that you choose, If you are applying jointly with your partner the income multiple may be up to 4 times your income plus one times your partners income. Some lenders may offer 3.5 times the salary of both applicants.
Your salary is based on your annual basic wage including 100% of any bonuses that are guaranteed and a further 50% of expected over time.
The lender will then deduct any other debt payments and any other costs from your salary before what ever multiple they offer is applied.
Depending on your occupation you may be able to get a higher income multiple. However you must make sure that you can afford the mortgage repayments.
The total amount you can borrow also depends on what type of mortgage you are looking for, whether it is a self certificated or a conventional income assessment method.
The good news is that no stamp duty is payable on a remortgage. The bad news is that there may be redemption fees and reservation fees demanded by your old and new mortgage lenders. Your old lender may charge you a penalty for leaving whilst your new lender an arrangement fee. The new lender will want to value your property so there will be surveyor fees and some conveyancing. Other typical fees are listed above.
Therefore if you are considering a remortgage, do your sums carefully as you may find the money you hope to save or release from remortgaging will be spent on fee's anyway and therefore not worth it.
Some factors to consider when remortgaging:
•Deed Release Fees
•Telegraphic Transferee Fees
•Early Redemption Penalties
•Mortgage Indemnity Guarantee
How Long Does the Remortgage Process Take?
Remortgaging is not generally a lengthy process. In normal cases you should have your remortgage deal sorted out and in place within a month and sometimes even in a matter of days.
How long the process of remortgaging takes will depend on your own particular case, on the details of your current mortgage, the property on which these mortgages are being secured, and on the details of your new mortgage.
In some case the new lender will carry out a valuation on your property, which can slow the process down a little, but normally not by much. Similarly, some of the legal processes involved can be a little slow moving, but unless some unexpected complication crops up, the whole thing should be over within a couple of weeks or so.
If you’re remortgaging with the same lender that your current mortgage deal is with, the process may naturally be faster, as there are fewer steps involved given that you are already one of their mortgage customers, and that they already know the property in this regard.
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