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TaylorMade’s Guide to Remortgaging

REMORTGAGING | 20.01.2017

Are you considering remortgaging your home, or wondering if remortgaging is right for you? The TaylorMade guide to remortgaging explains everything you need to know about remortgaging your home.

This guide is for you if…

You want to remortgage your home

If you own your property outright and want to borrow against it, or if you already have an existing mortgage but are looking to move lender.

You are moving home

If you’re looking to move house and need to remortgage for your new property. If you want to switch your mortgage to get a cheaper rate and better deal - then this guide is for you! We hope to answer any questions you might have regarding the remortgage process, including who is eligible and the different kinds of remortgage options that are available on the market; as well as what to do if you’re self-employed and circumstances when you shouldn’t remortgage.

This guide is NOT for you if…

You are a first time buyer

If you’re buying your first home, we have a dedicated guide just for you.

You are buying a second property

If you’re looking to extend your property portfolio, buying a second property either to rent out, or to keep as a second home, you would need a second mortgage, rather than a remortgage.

What’s the point of remortgaging?

In short, the answer is: to save yourself some money Once you’ve jumped through all the hoops of getting your mortgage, it can be easy to settle into the routine of paying your monthly mortgage payment without really giving it a second thought. However, for the majority of people, their mortgage is their biggest financial commitment. So if you could get yourself a better deal and save yourself some money each month, it can work out as a huge saving on your overall outgoings. A lot of people stick with their mortgage deal long after any introductory discounts have ended, when they are usually on a Standard Variable Rate. However, it is at this point where you should look into remortgaging to ensure you’re getting the very best deal for you. It’s always best to approach your current lender when considering remortgaging as they’ll want to keep your business with them. Sticking with the same lender can mean a reduction in administration fees but ensure your new deal outweighs the prospect of paying fees elsewhere. Your lender may charge an exit fee if you decide to switch lenders, as well as an early repayment charge, so that’s something to factor into your decision too. If you consider your options and decide that sticking with the Standard Variable Rate is in fact the best thing to do, that’s fine. Just make sure you’re sticking with this rate by choice, rather than foregoing any “hassle.”

Other reasons for remortgaging

As well as saving you money on your monthly outgoings, there are other reasons why you might consider remortgaging.

Your circumstances have changed

In the fortunate event that you get a pay rise, or come into some extra money, you may want to make extra payments on your mortgage, or even pay it off early. However, your current mortgage agreement may not allow you to do that without charging you large fees, if at all. On the flipside, you could be in the midst of a job change or be going back into education and need more flexibility in your mortgage arrangement. You might even require a payment holiday. If your current mortgage is pretty rigid, it’s worth looking at what else is on the market.

You want to raise some capital

You could be looking to raise funds to buy a new car, complete some home improvements or to help your children onto the property ladder. Whatever the reason for needing a bit of extra cash, remortgaging, either with the same lender or a different one, is a great way to get it.

When you shouldn’t remortgage

Whilst it can be hugely beneficial financially to remortgage, there are some instances where you should not remortgage. These include positives instances such as:
  • You’re already on a great deal
  • You have a very small mortgage
  • You’ve almost paid off your mortgage
And less positive instances such as:
  • You’re locked into a bad deal
  • You own 10% or less of the property
  • You have a bad credit history
  • Your equity had shrunk
  • The timing isn’t right
If any of these apply to you, we recommend having a chat with a professional mortgage adviser before you take the plunge and remortgage.

Remortgaging for the self-employed

If we’re being completely honest (and that’s the TaylorMade way) remortgaging when you’re self employed can be pretty tough.

Why is it tough for self-employed?

Lenders require concrete proof of your income, usually over the last two years at least, to ensure that you are a solid investment and can keep up with repayments. Providing adequate proof of your income, and future income, can be difficult if you’re self-employed or on temporary contract work.

How do I get a remortgage deal?

Providing sufficient evidence of your income can be done in one of two ways: Business accounts - Lenders will need to see at least two years of your business accounts which should be signed off by a certified accountant. Tax returns - If proving business accounts isn’t possible, at least two years of tax returns is your other option. Keep in mind that lenders will be assessing your profits rather than your overall turnover. If you have been self-employed for a lengthy period of time and can provide rigorous evidence of sufficient income, then you’re more likely to get a remortgage deal. However, if you’ve recently become self-employed or switched to contract work, it’s very unlikely you will be successful.

What types of remortgages are there?

If you’ve decided that remortgaging is for you, then there’s an even bigger decision on the horizon: what type of mortgage to choose. Now, with the amount of deals to sift through it can be a bit like wading through a breakfast buffet trying to get to the best sausages. Luckily, you’ll have your trusty mortgage adviser on hand to make sense of it all. However, the choice is ultimately yours. The best way to approach the decision is to keep in mind the reason you’re looking to remortgage. That should help steer you in the right direction.

Repayment mortgage or interest only?

Unless there are some very specific circumstances, we would always recommend opting for a repayment mortgage. A repayment mortgage guarantees that you actually pay of some of your mortgage debt each month - which is what you want. With interest only, you do exactly what it says on the tin; you pay off only the interest on the debt and none of the loan. This can make your monthly payments much lower than with a repayment mortgage, however, you still need to pay off the original debt at the end of your mortgage agreement. In any case, interest only mortgages have become much harder to come by as lenders need to know that you have a way of paying off the total cost of the house. It’s often not enough to rely on future inheritances, investments coming to fruition or selling your home for a profit.

Which mortgage rate is right for you?

With so many different deals to choose from it can be a little overwhelming. This is why it’s always advisable to have a reputable mortgage adviser on hand to help inform your decision. We’re going to give you a brief overview of each type of mortgage rate and some pros and cons associated with each.

Fixed Rate

With a fixed rate mortgage, your repayments stay fixed for a predetermined length of time, usually two, three or five years, and are not affected by rising or falling interest rates. Pros
  • You know exactly how much your mortgage will cost each month
  • You won’t see an increase in payments during your fixed term
Cons
  • You usually pay a higher rate than other variable products
  • You won’t see a decrease in payments during your fixed term even if interest rates fall
  • You usually have to pay a costly early exit fee

Tracker

With a tracker mortgage, the rate you pay is directly linked to the Bank of England’s base rate which means when it rises, so do your payments, and when it falls, so do your payments. Pros
  • You know that the only thing that can increase your monthly payments is an economic change (rather than your lender)
  • You have a lot of transparency in your deal
Cons
  • You have a degree of uncertainty in the fact that if rates rise, your monthly payments will rise too
  • You’re fixed into a relationship and have no flexibility

Standard Variable Rate

Each lender has their own SVR which means it’s worth really shopping around. They tend to mirror the Bank of England’s base rate but don’t fall exactly in line. You’re rarely put on an SVR at the beginning of your term, but it’s usually the rate you pay once your introductory fixed term/discount ends. Pros
  • You can end up on a great deal with cheap repayments
  • If interest rates drop you’ll most likely see a reduction in payments
  • You usually have no early repayment charges
Cons
  • You don’t have the certainty of knowing how much your mortgage payment will be each month
  • You might not see the full benefit of a drop in interest rates as the lender sets their own rate

Discount Rate

With a discount rate mortgage, you receive a discount on your lender’s SVR for a specified period of time. After this time ends you usually go on their SVR. Pros
  • Usually cheaper than other rates
  • You can often see a decrease in your monthly payments if interest rates drop
Cons
  • You have no certainty
  • Lenders may increase their SVR which means you might not see a great benefit
The best thing to do is talk to an independent mortgage adviser so you can thoroughly discuss your circumstances and weigh up all the options in detail to ensure you’re on the right type of mortgage for you.

Remortgaging FAQs

Is Stamp Duty payable when I remortgage?

Unless you need to transfer the legal title of your home as part of the remortgage transaction, you won’t need to pay Stamp Duty.

What other fees are there involved?

The first cost to consider is the arrangement fee. This is by far the highest charge when remortgaging and they’ve increased dramatically over the last few years. Sometimes they are worked out as “percentage fees” and can be as high as 1.5% - 2% of the loan, which, on a £200,000 mortgage would work out as between £3,000 and £4,000. Factoring in the arrangement fee as part of the price of your mortgage is vital. If you’re looking at a mortgage under £150,000 the fee can be disproportionately large. Sometimes it can be better to opt for a deal with a larger interest rate, but with a lower fee as it often works out cheaper.   On top of your arrangement fee, some lenders also charge something called a booking or reservation fee. They usually use these as a way to secure a fixed rate, tracker or discount deal, cost around £150 and are non-refundable.   You may have to pay an early repayment charge to your existing lender if your remortgage means you’ll be paying off your current mortgage. Depending on the current deal that you’re on and which lender you are with, you may have to pay an exit fee if you decide to switch lenders. If you’re thinking of remortgaging and would like to speak to a professional mortgage broker, contact one of our advisers here at TaylorMade.
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