Published 9th August 2022
Remortgaging saves you money on monthly repayments and can improve your mortgage terms. Find out ways to save money by switching your mortgage terms.
The cost of living and interest rates have been on an upward trajectory over the recent months, which should give you cause for concern. The fluctuating rates could increase your repayments unless your mortgage is on fixed long-term interest rates. Unfortunately, over two million borrowers are on variable rate deals. Hence, the mortgage repayments are rising following the base-rate rise. Luckily, you can solve your problems with a simple mortgage switch.
Remortgaging involves getting a new mortgage deal on your property to improve the repayment terms or release the equity in your property. When the current mortgage interest rates are low, switching mortgages allows you to take advantage of the lower rates, and you can change lenders. When you remortgage at the right time, you save thousands of pounds on the overall property costs, which helps you pay off your mortgage faster. How does remortgaging work?
Standard mortgages have a five-year maturity timeline. You can switch the mortgage or renew a similar term with the existing lender when the term ends. If the current interest rates allow you to pay lower, switching your mortgage provides better prepayment options and increases your interest rates.
Buying a house or owning a property is a significant investment. The repayments will eat up most of your monthly earnings if you finance the purchase with a mortgage. Unfortunately, the best mortgage deals are available for a limited period, so you may fix your interest rates for two or three years. When the fixed term ends, the rates move to your lender's standard variable rate (SVR). The downside of using SVR is the fluctuations. The lender can increase the interest rate, which raises your monthly repayments. A remortgage allows you to get a new fixed or tracker rate and secure lower interest rates, which saves you some cash.
As you make monthly mortgage payments, you build up equity in your home. For instance, when you pay an upfront deposit of 10%, you own 10% of the property outright. Over time the combination of repayments and rising property value increases your ownership. During remortgaging, the lender allows you to borrow at a lower loan-to-value due to your equity. As your loan-to-value decreases, you receive better interest rates since they view the mortgage as low risk.
When taking out a mortgage deal, you base the terms on your current needs and repayment capability. However, your needs can change in two or five years, and you may want extra flexibility like taking payment holidays or overpaying. Switching your mortgage allows you to cater to changes in your ability to pay. If you want to fund home improvements, remortgaging releases equity and allows you to increase your debt to complete the remodelling.
People are always looking for ways to save money, whether on shopping or travel. Another exciting way to save a huge chunk of cash is by switching your mortgage. For instance, when you buy a property, the loan-to-value is higher since your equity on the property is low. If you change your mortgage deal after two years, your monthly repayments will reduce by over £200.
When your initial fixed or tracker rate ends, you should shop around for the current mortgage rates to find a good deal. Since the mortgage lender will notify you before switching your mortgage to SVR, it is an invitation to consider remortgaging. The remortgage process takes eight weeks, so you should find a conveyancing solicitor to weigh your options and receive remortgage advice.
Aside from the solicitor’s fees for conveyancing, you also incur exit fees. When switching from the initial fixed or tracker period, you pay an early repayment charge (ERC). The ERC is a percentage of the outstanding debt plus administration costs for closing your account. Arrangement fees also arise for remortgaged houses, and you can pay more than £1,000. The legal fees are usually lower due to the minimal legal work involved. When you switch lenders or take a buy-to-let remortgage, the lender will conduct a property valuation.
When shopping around for remortgages, ensure you look at the services of Home Legal Direct. We will connect you to vetted conveyancing firms for your remortgage. We help research what other lenders offer and ensure you enjoy the highest savings.