Remortgaging is a strategic financial move for some homeowners. If you are coming to the end of a fixed term, remortgaging can allow you to secure better interest rates, release equity, or consolidate debt. With that said, issues of timing, credit and other factors can lead to common mistakes that make the remortgage less efficient than it should be. In the worst cases, this can lead to financial losses that would otherwise have been avoided.
By identifying the risk factors associated with these common errors, you can mitigate these risks and secure the most advantageous terms for your remortgage based on your circumstances. Our remortgage solicitors often speak to clients who have failed to consider these specifics, and help them to avoid signing a deal that won’t meet their needs.
Missing key costs
A number of fees will apply when you look to remortgage, and focusing solely on the headline interest rate can mean that you end up signing a deal that, although it has a lower rate, costs you more overall.
The first and most important is the early repayment charge. Exiting your current mortgage deal before the fixed period ends often triggers an early repayment charge, which is typically calculated as a percentage of the outstanding loan. As such, this can amount to thousands of pounds and offset the savings available through a lower interest rate. Many “market-leading” rates also come with significant arrangement fees and if you are remortgaging a smaller loan, the interest savings may not offset the upfront cost.
Remortgaging at the wrong time
Timing is critical in the remortgage market. Most mortgage offers last for up to six months, which means that you can start working to find a better deal with plenty of time before your current deal expires. When homeowners wait until their fixed rate expires before searching for a new deal, they will be moved onto the lender’s standard variable rate (SVR).
The SVR is almost always significantly higher than fixed or tracker rates. Remaining on this rate for even two or three months can cost hundreds of pounds in additional interest, so it is important to act early. Starting your search six months before your deal expires means you will leave enough time for any conveyancing that needs to take place, and allows you to lock in a rate early, and protect yourself against market fluctuations.
If your property value has fallen, or you are in negative equity (meaning that you owe more in repayments on your mortgage than the property is worth), remortgaging will often result in a worse deal, or may be impossible. In these cases, you should speak to a mortgage adviser at your earliest opportunity for support on addressing the problem and improving your financial position.
Failing to get the best deal
When you remortgage, your new financial circumstances are taken into consideration, which often results in better deals being on offer than when you first bought the property. With that said, there are steps you can take to protect your borrowing capacity and avoid the risk of getting a worse deal.
Your creditworthiness is re-evaluated during a remortgage, even if you remain with your current lender for a new product (a product transfer). To avoid rejection or higher interest rates, you should avoid taking out new credit cards or car finance shortly before remortgaging, and correct any inaccuracies on your credit file in the months before you start to research your remortgage options.
At the same time, the Loan to Value (LTV) ratio on your property is the primary factor determining the interest rates available to you. This compares the value of your property with the value of your mortgage, and a higher ratio (meaning that your property has increased in value due to market changes or home improvements) will deliver better interest rates. You should research the value of your property clearly before exploring remortgage deals that may be available, to give you reliable insights. If you overestimate the value of your property, your application may be rejected or stalled when the lender’s valuation comes back lower than expected.
Misunderstanding the process
Homeowners sometimes select a mortgage product based on what they had previously, rather than what suits their current long-term strategy. This can lead to a deal that looks good initially, but does not suit your goals. The products available usually include:
We recommend discussing your future intentions with a professional to make sure the product structure supports your goals, such as the ability to make overpayments without penalty.
If you are adding or removing a person from the mortgage (a transfer of equity), the process is different from a remortgage, and requires specific legal adjustments to the title and mortgage deed. This is another way that people sometimes underestimate what they need during the process, and incorrectly assess the costs involved.
With all of these factors in mind, it is easy to find the right remortgage deal to meet your needs, and avoid mistakes that will lead to significant financial losses in the wrong circumstances.
