Understanding Remortgaging: Beginner Guide
By TMG | 30th October 2024
Remortgaging refers to the process of switching your existing mortgage to a new mortgage, either with your current lender (also known as product transfer) or a different one. Homeowners typically remortgage to benefit from a better financial position, such as:
· Lower Interest Rates: If market rates have dropped since you took out your mortgage, remortgaging can reduce your monthly payments.
· Better Terms: You might find a deal with more favourable conditions, such as a shorter term or more flexible repayment options.
· Accessing Home Equity: Remortgaging can allow you to borrow against the equity in your home for purposes like home improvements or debt consolidation.
· Changing Financial Situations: If your credit score has improved or your financial situation has changed, you may qualify for better mortgage rates.
When you take out a mortgage, you're typically assigned a fixed interest rate or another fixed-term product, which can last for two, five, or ten years. After this fixed term ends, the interest rate usually switches to a variable rate, which is often higher than the original fixed rate. At this point, it is important to seek professional advice from a mortgage advisor to help you lower the rate.
Type of mortgage
There are two main types of mortgages: Interest-Only Mortgages and Repayment Mortgages. Your mortgage advisor can assist you in choosing the best payment option for your needs.
Regardless of whether you have an interest-only or repayment mortgage, you’ll likely need to remortgage after your fixed term ends to lower your payments. The remortgaging process typically involves assessing your current mortgage, exploring new deals, applying for a new loan, and completing the necessary paperwork. It is important to consider any potential fees or penalties tied to your existing mortgage before moving forward.
Tips for a successful remortgage
Before starting the remortgage process, take a close look at your financial situation. Assess your income, expenses, and any outstanding debts. This will help you determine how much you can afford and what type of mortgage may be best for you.
Start the remortgage process early. When you apply for a new mortgage, you can often lock in an interest rate for up to six months. During this time, if market conditions improve, your mortgage advisor can help you secure a better rate for when you're ready to switch once your fixed term ends.
Prepare your documents in advance. Some documents may take longer to obtain, so it’s essential to have everything ready to ensure a smoother remortgage process.
Your credit score plays a significant role in determining the interest rates and terms you’ll be offered. Obtain a copy of your credit report and review it for any errors or issues that could impact your score. Addressing any problems beforehand can improve your chances of securing a better remortgage deal.
Remortgaging can be a smart financial move if done correctly. By starting the process early, preparing your documents, understanding your finances, and seeking professional help, you can find a mortgage deal that better suits your needs and potentially saves you money. If you have any questions, feel free to reach out to us!