When we first apply for a mortgage, most of us sign up to an introductory rate for a certain period.
For those on a tight budget, this is often a fixed rate deal, which charges a fixed rate of interest for two or more years. Alternatively, there are discounted deals. These offer a discount on the lender’s standard variable rate (SVR), again for a set period. So an SVR of 5% might be discounted down to 3% for two years.
Then there are tracker deals, which track the Bank of England base rate, plus a set percentage on top. The deal might promise to charge base rate plus, say, 2% – so if the base rate were 0.5%, the rate charged to the borrower would be 2.5%.
With a capped mortgage deal, the rate will rise and fall in line with market conditions with the guarantee that it won’t exceed a certain level.
If you’ve been with the same mortgage lender for several years, the chances are you may be paying much more than you need to for your home loan.
Remortgaging to a different deal could potentially save you hundreds or even thousands of pounds a year, so it’s important to review your mortgage regularly to see if better deals are available elsewhere.
Here, we explain exactly how remortgaging works and outline the potential benefits.
Remortgaging happens when you change the mortgage you currently have on your property by switching it to a new lender – this can be a great way of saving potentially thousands of pounds over the term of your mortgage.
The majority of initial deals such as these only last for a few years. When they expire, homeowners will usually automatically be moved onto the lender’s standard variable rate, which will typically, but not always, be higher than the rate they have previously been on.
You don’t have to settle for the standard variable rate, however, or stick with the same lender for your whole mortgage term. Provided you aren’t locked into a deal which will charge you early repayment penalties if you change, you should be free to switch to another mortgage deal whenever you want.
Doing so could save you thousands of pounds a year.
If you are currently paying your lender’s standard variable rate, you could potentially save yourself a fortune by moving to a different deal. However, this won’t be the case for everyone, particularly those with very limited equity in their properties.
This is because the most competitive remortgage deals are usually reserved for those with at least 25% or more equity (meaning their mortgage is for less than 75% of the property’s value; if someone has a £150,000 mortgage on a house worth £300,000, they own 50% of the equity).
If you aren’t on a standard variable rate and want to leave your existing fixed, discounted or capped deal early, make sure you check what penalties are in place. If you are locked in to your current deal, then the fees for switching ahead of time could wipe out any savings you would make by moving to a deal with a lower rate of interest, which means remortgaging wouldn’t make sense.
You should also check whether there are any application fees attached to the new mortgage, and any other associated fees, such as a property valuation or survey. Again, these may obliterate any interest rate savings and eat into equity that is released by the move.
At the Cornwall Mortgage Centre we will happily run through the details of your current deal and explain clearly any fees associated with your new mortgage deal.
The main reasons people remortgage is to save money (by securing a lower rate of interest on the debt), or because they are moving to a different property. Others remortgage to release capital (or ‘equity’) from their property to pay for things such as home improvements, or to pay off other debts.