There’s a lot to get your head around when it comes to mortgage terminology. From fixed and variable rates to APR and APRC, you’ll hear a lot of jargon when going through the process, so it’s understandable that a learning curve is required for first time buyers.
However, new research has been conducted into the nation’s understanding of common mortgage jargon. Worryingly, the term that confuses people the most was remortgaging, with 3 out of every 4 people unable to define what it actually means.
So, what does it actually mean?
When you go through a remortgage you are entering into the process of switching your mortgage deal. You can take out a new mortgage on a property you already own, either to borrow money against the property, or to replace your existing mortgage. In the UK, around one third of all home loans are remortgages.
Remortgaging can be a great financial decision for many homeowners, however it isn’t always right for everyone. If you already have a decent mortgage deal, or if you own less than a quarter of your property, you’re less likely to find a good remortgage deal.
Why would you want to remortgage?
People remortgage their homes for all sorts of reasons, including:
Avoiding the current lender’s Standard Variable Rate (SVR)
If your current mortgage deal is about to end, the lender will place you on its standard variable rate (SVR). This is very likely to be higher than your current interest rate, and higher than others that are available to you.
The typical mortgage deal, such as fixed rate, tracker or discount offers, last for around 2 to 5 years. So, it’s important to get yourself ready for when your deal is coming to an end, remortgaging can allow you to find a better rate.
The value of the home has increased
The value of your property can of course increase significantly since you first took out your mortgage. If this is the case, you may be eligible for lower rates if you fall into a lower loan-to-value band.
Concerned about interest rates rising
Interests rates can frequently be a cause for concern. Before you start worrying, you need to understand if rising rates will really affect you, which means doing some quick checks. For example, if the rates that new customers are being offered are rising, then this won’t necessarily mean yours will be affected.
However, if the Bank of England base rate is predicted to increase, your mortgage payments may directly be impacted. Of course this depends on the type of mortgage you have.
Switching from interest-only to a repayment mortgage
If this is something you’re considering, then remortgaging shouldn’t be required for you to switch, as your lender should be fine with you doing so. However, things are different if you intend on changing from capital repayment to interest only.
Needing to borrow more
Getting a remortgage with a different lender can give you the chance to raise money on lower rates. Make sure you consider all the fees involved first though. Generally lenders are more likely to accept you borrowing more money for home improvements and paying off other debts, than starting a business.
Keep in mind that you’ll need to provide evidence for the lender when you intend on borrowing larger amounts.
Wanting to overpay
It may be the case that you’re suddenly earning more money or you've recently come into an inheritance; and now you want to pay more of the mortgage off. The only problem is, your lender won’t let you make an overpayment.
If this is the case, opting for a remortgage can give you the opportunity to reduce the loan size and potentially get a cheaper rate as a result. Make sure you compare any potential savings you could make with the lower mortgage against any early repayment charges or exit fees. This way you can really determine if you will make a significant saving.
Getting a more flexible mortgage deal
Many people decide later on that they require more flexibility from their mortgage deal, for various reasons. Perhaps you’d like the ability to miss a payment, or change to a deal that allows you to combine your savings account with your mortgage.
Whatever you need in terms of flexibility, it’s likely that you can find it through a remortgage. However, these extra-flexible features may come at a higher price, and interest rate. So, choose wisely as to what you really want from your deal.
Many people opt for a remortgage in order to gain the flexibility of consolidating any debts into a single, affordable monthly payment.
TaylorMade is here to help
We understand that many homeowners and first time buyers are being left at a huge disadvantage, because they don’t fully understand all the jargon used in their mortgage agreement.
Statistics that show how much the term ‘remortgage’ is misunderstood is worrying. Because it leaves people at risk of falling into the more expensive Standard Variable Rate, which could see them paying an average of £4,500 extra a year due high-interest rates.
That’s why we at TaylorMade believe the mortgage process should be as clear and as transparent as possible, and this includes remortgaging too. We strive to ensure you’re treated fairly by lenders, and that you’re given the tools and information you need to make the most informed financial decisions.
We can answer any questions you have, explain exactly how mortgages and remortgaging works, and our friendly team can talk and guide you through all of your options. If it sounds like remortgaging could be the right move for you - get in touch with the team at TaylorMade today.
