Things to consider before taking out a mortgage
If you decide to remortgage your home, you essentially switch to a different lender and a different mortgage deal to save money. It’s a bit like switching energy provider, with the same intention of saving your well-earned cash. The main reason many people choose to remortgage is because the rate they are currently paying might not be the best available, and the interest rate may be high, resulting in larger payments being made to a lender.
Moving over to a deal with a lower rate of interest can save you hundreds if not thousands of pounds over the term of your mortgage. If you’ve had your mortgage for a while and interest rates have come down; if you want to release equity (value) out of your home, or if you’re near to completing your present mortgage deal, remortgaging can be a great option.
If you need detailed help and advice on remortgaging your home, talk to our team of mortgage experts at iam mortgages today. We can even assist you with your mortgage application, if you’d like us to. Below is a simple guide to the considerations you should be thinking about before remortgaging your home, as you should always remortgage at the right time to get the best deal. If there isn’t a better deal available for you or you’d face hefty charges for leaving your current deal, it might be worth remaining with your present lender.
Remortgaging may save you money, but also costs fees
You’ll have to pay fees to remortgage your home, so it’s always worth adding these up to see if switching your lender is worth it overall. These fees include:
- An arrangement fee (a fee to set up your new mortgage)
- An exit fee (to leave your present lender)
- Legal (conveyancing) fees
- Survey fees (for the new lender to assess your property)
- Early repayment penalties (for leaving your current mortgage lender early)
Think before remortgaging to consolidate debts
If you are thinking of consolidating your debts (i.e. putting them all in one place with a low rate of interest), you can remortgage your home and use some of the money saved to pay off the debts. There are however some negatives to this:
- The interest you’ll need to pay off will run for quite a long period, as you’ll not only have the interest on your remortgage to pay, but also your other debts, too.
- You could lose your home if you fail to keep on top of repayments with the lender.
Your credit score will greatly affect how much money you can borrow from a lender. If you have a low credit score, you will be offered better remortgage deals.
If you need advice on remortgaging your home to consolidate debts, get in touch with our helpful team at iam mortgages today, where we can offer free impartial advice on your circumstances.
Do you need more equity in your home?
The difference between the value of your property and the size of the mortgage you take out is known as ‘equity’. For instance, if you have a house that is worth £300,000 and you have a £200,000 mortgage, your equity is £100,000. This difference between the two amounts is also known as the Loan to Value ratio (LTV). The lower the LTV rate you have, the better the interest and mortgage rates you will receive as part of a mortgage deal. It is better to save up as much money as possible to ensure you have a low LTV and a decent amount of equity regarding your home. If you remortgage when you have more equity, you will benefit from better rates.
What mortgage should you switch to?
Do you want a fixed rate mortgage that fixes rates of interest and the amount you pay per month for a set period of time, or a mortgage with a variable rate so that you can make overpayments or underpayments should you wish to? You should also consider how much flexibility you need your mortgage to have if your current financial circumstances change. If you are tied into a fixed rate mortgage, you can be charged extra for early repayments. To discover the various mortgage options available, read our easy guide to the different types of mortgage.
For more advice on remortgaging your home and for any questions regarding mortgage rates, equity and LTV rates, contact our mortgage experts at iam mortgages.