The five golden rules of remortgaging

Switch and save the smart way when you come to change your homeloan.

If your mortgage is coming up for renewal, you might be at a loss as to what to do. All the experts seem to be recommending fixed rates, but perhaps your lender’s SVR is dirt cheap and very tempting. Plus, with falling house prices plunging many homeowners into negative equity, and lenders having tightened the screws over the past two years, you might be worried you’ll be left with limited remortgage options.

Frankly, where do you start when it comes to remortgaging?

1. Speak to your lender first
You need to arm yourself with certain facts when you remortgage and your lender is the first port of call. Ask what your outstanding mortgage is, check there are no early repayment charges to move your homeloan (and if there are, how much are they?) and ask about the exit fee — a charge made by most lenders which usually costs at least £200.

Then ask your lender what will happen if you do nothing. You will probably revert to its Standard Variable Rate (SVR) which could be low, depending on your lender. Find out exactly what your monthly repayments would be, so you can compare it to a new deal easily.

Remember, if you stay on your lender’s SVR, you won’t need to pay a new mortgage arrangement fee, valuation fee or legal fees, which you will face if you move your mortgage.

But the downside is, your lender’s SVR will be variable. That means the rate goes up and down broadly in line with interest rates — so there is potential for it to rise. If you would prefer the security of a fixed rate, ask what deals your lender can offer you. Some will offer existing clients a fixed rate option even if your loan-to-value ratio (your mortgage as a proportion of the property’s value) is higher than its usual maximum.

2. Compare the deals available to you
Once you are armed with information from your existing lender, it’s time to shop around. Despite the mortgage market having contracted significantly during the credit crunch there are still hundreds of deals out there from dozens of lenders. The best, easiest and quickest way to compare mortgages is through a comparison service like the one provided by lovemoney.com. This allows you to input your requirements and search hundreds of deals in seconds, sorting them by interest rate for example.

When you compare mortgages, it’s useful to have considered the type of deal you want. Do you want the immediate low rate of a tracker mortgage or the security of a fixed rate?

Also consider whether you can afford to pay a large upfront fee or not, and whether you need flexible features such as the ability to overpay and underpay.

It will also be useful to have a rough idea on the current value of your property so you can work out your loan-to-value ratio and search for deals that are available to you.

3. Do your sums
When you have found a few deals you are interested in, it can be helpful to work out the total cost of these mortgages over a set period. If you are after a two-year fixed rate it makes sense to look at the total cost over two years for example.

To do this take the monthly mortgage repayment and multiply by 24 (months), then add on any fees and charges, and subtract any cashback the lender may offer. It is sometimes the case that the lowest rate is not in fact the lowest deal in terms of true costs, particularly if it comes with a hefty fee.

And don’t worry if you are not very good with numbers — when you compare mortgages at the lovemoney.com mortgage centre, you can get them listed based on the total costs as well as looking at other criteria.

4. Think about what you would do if rates rise
If you are looking at tracker mortgages or discounted variable deals, remember that these rates can move up and down in line with Base Rate. Although they are currently available at very low rates, it’s worth bearing in mind that they are actually priced at a wide margin to Base Rate. A tracker mortgage at 3% looks low, but with Base Rate at 0.5% the lender has a margin of 2.5 percentage points. If Base Rate was to go up to 5% (which is perfectly possible in the next year or two) your pay rate would be 7.5%.

If you cannot afford a large rise in your repayments it could be worth fixing your rate. There are some attractive fixed rate mortgages around for only a modest premium above tracker deals.

5. Speak to a broker if want face-to-face advice
Mortgages are not always straightforward and a broker could provide invaluable help and advice. They will find out about your financial circumstances, attitude to risk and preferences and search the market to find deals that will suit your needs.

All brokers are authorised by the Financial Services Authority and must have passed professional qualifications in order to give advice. More importantly they understand the mortgage market inside-out.

Unfortunately the credit crunch has led some lenders to solely distribute their mortgages direct to consumers rather than through brokers, meaning advisers do not always have access to all the best deals. However, the majority of products are available through intermediary channels, and the service that you get from a professional could be invaluable.

They have strong contacts with lenders and can rush through cases when necessary or help clients with unusual circumstances to get a deal through. If you have a history of bad credit, you are self-employed or you need a buy-to-let mortgage for example, a mortgage broker is still your best bet to get a deal.

Very good Article by www.lovemoney.com