Remortgaging is on the up! It now accounts for about a third of all home loans.
When you remortgage, you take out a new loan with either your existing lender or another lender. According to the Council of Mortgage Lenders (CML), there were 34,700 loans for remortgage in December 2016, worth a total £5.8bn – that’s an increase of 13% in volume and 14% in value – while Paragon reported they now account for 39% of all mortgages handled by advisers.
Remortgaging could help you free up money for something you really want, help you pay your mortgage off quicker by moving to a lower rate, or help you better manage your monthly household outgoings. TSB found that homeowners could save an average of £96 a month by remortgaging to a lower fixed rate deal.
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Why are more people remortgaging?
- Their current deal is ending and they want to get a better rate.
- They want a different mortgage that suits them better, for example one that has different rules for exit fees.
- Their financial circumstances have changed, for example, they may be earning far more or less than they were when they first took out a mortgage.
- They want to be able to make mortgage overpayments, or take payment holidays, but their current deal won’t allow them to do that.
- The value of their home has gone up, meaning they could be eligible for lower mortgage rates than before.
The Bank of England rate stayed at 0.5% from 2009-2016, before dropping to a historical low of 0.25%, and with no rate rise until 2018 predicted, it’s not hard to see why so many people are keen to lock into long-term, low fixed rate mortgages if possible.
What about additional mortgage borrowing?
The other common reason for remortgaging is to free up money for improvements or for large purchases. If lenders see the value of your property is higher than the amount you owe on your mortgage, you could move to a larger mortgage.
A 2016 survey from TSB found that some of the top reasons why people remortgage to a lower fixed rate to free up cash were:
- 39% want to go on holiday
- 37% will overpay their mortgage to pay less interest overall
- 21% will undertake a major home renovation
When’s the best time to remortgage?
You want to start your remortgage application at least a few months before your current deal ends because it can take that long for the lender to process it.
Show lenders you can manage credit
Make yourself attractive to lenders by showing you’ll be a reliable and responsible borrower, and by keeping up to date with credit payments such as your mortgage, credit cards and other credit you have.
And checking your credit report before you make the application can allow you to see what the lender would see, and give you a chance to update any inaccuracies and correct any information that’s out of date. Understanding how your credit report works, and how lenders use it, can help you manage your finances better, and get a better chance of getting the mortgage deal you want.
How to remortgage
In many cases, your lender will contact you a few months before your current term ends to arrange a review – that could be the time to start looking at the various rates, options and lenders.
Choosing between fixed or variable? Repayment or interest-only? The type of mortgage you choose will make a difference to the amount that you repay every month. You can compare mortgages with Experian CreditMatcher, and get your Experian Credit Score free forever too.
When you remortgage, the process is similar to when you take out a mortgage for the first time – a solicitor will handle the legal aspects including arranging the transfer of funds.
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