Sometimes change is good. Of course, if something is not “broken,” then there is no need to fix it. In some cases, making changes can actually worsen our situation. However, in certain cases, changes can actually improve our predicament. The key is to know when we need to make those changes, and how we should implement them. Then we can have peace of mind knowing that the change is worthwhile.
One type of financial change that you may need to enact, is remortgaging. When we take out a loan for our UK home, we assume that the mortgage will be sufficient for the complete duration of our mortgage repayments. However, sometimes we should consider the process of remortgaging. While remortgaging is not a wise choice for everyone, it can be beneficial in certain circumstances. It is important to know about the process of remortgaging, and when you should remortgage. Here are some tips for you to consider:
1. Know what remortgaging involves
Remortgaging involves moving your current mortgage to a different lender, in an attempt to lower your mortgage repayments. In fact, you are permitted to remortgage your loan at any time, in order to avail of a lower interest rate. As mortgage payment protection quotes can be helpful, so this process could save you hundreds or even thousands of pounds annually. However, remortgaging is a major step to take, so you should first consider requesting your current lender for a lower interest rate.
2. Learn about early redemption penalties
Before remortgaging, you should learn if your current lender could charge you an early redemption penalty for moving your mortgage. Typically lenders charge this unless you agree to pay the standard variable rate of interest to your mortgage lender. Usually when you take out a mortgage with a fixed or discounted mortgage, early redemptive penalties are applicable.
Lenders apply the penalty if you pay off your mortgage early, or if you move your mortgage to a different lender. Why do lenders impose such penalties? They successfully prevent most borrowers from switching to another lender, due to the high cost. Typically the penalty applies for the entire duration of a fixed or discount mortgage. However, an extended redemption penalty (or extended tie-in) could actually last many years after your mortgage deal ends.
How can you avoid these penalties? Unfortunately, it is improbable that you can find a solid mortgage deal without early redemption penalties. Thus, just as you are required to take out home insurance on a new home, your only option is to wait until the period for the fixed or discount interest rates ends.
3. Understand the costs of remortgaging
The main cost of remortgaging involves the early redemption penalties, which a lender charges if you pay off your mortgage loan early, or switch to a different mortgage lender. As a general rule, the earlier you leave your current mortgage provider, the higher an early repayment fee you must pay.
Another group of costs that you should consider are the charges that you must pay to the new mortgage provider. These fees are the same type that you paid when you secured your original mortgage, and include:
• Arrangement fee
• Higher lending charge
• Legal costs
• Reservation fee
• Valuation fee
If possible, it is better to pay these fees when you remortgage. Another option is to add it to the balance of what you have borrowed. However, the drawback of taking this action is that you must pay interest on the fees. The total number of fees that you owe will vary, just as the cost of payment protection insurance varies. The former are based on the requirements of the lender or the law. For instance, if your remortgage involves moving house, you should be prepared to pay Stamp Duty Land Tax.
4. Compare costs and savings
Ultimately, you must determine if the savings that remortgage provides, is still worthwhile after factoring in all of the fees that the process involves. Even if remortgaging could provide you with substantial savings, you should consider whether the various fees due still make the remortgaging worthwhile.
5. Consider the APR
The Annual Percentage Rate (APR) is a figure that you typically see in mortgage advertisements. The purpose of the APR is to allow you to compare different mortgage deals. While you should certainly consider the APR of a particular mortgage deal, remember that it does not consider all of the costs of remortgaging.
6. Consider how long remortgaging will take
In theory, you should be able to complete the process within a week, or even within days. Your financial adviser should be able to give you a reliable estimate about how long the entire process will take.
7. Consider how frequently you can remortgage
Technically, you are able to remortgage as many times as you wish. However, if you are receiving a fixed or discounted rate, your lender may require you to pay early redemption penalties, if you switch mortgage providers before paying off the loan. Furthermore, your current lender may require you to pay arrangement fees as well. Nevertheless, just as you should carefully take out buildings and contents insurance, you should still annually evaluate your current mortgage, and determine if remortgaging would be prudent for your particular situation.
8. Learn what your new monthly repayments will be
It is important to learn precisely how much your new monthly repayments would be, according to the interest rate that lender quoted. This will help you to determine if remortgaging is prudent for your particular situation. Furthermore, learn how much you would pay at the standard variable rate. As an alternative, you can use mortgage calculators to determine yourself how much your repayments will be.
After taking out a mortgage, you should annually consider if you should remortgage your home. Consider several factors, just as you would when securing mortgage payments insurance. Considering the aforementioned tips will help you to make the best decision that is best for your situation!
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