16 September 2014

Thinking about remortgaging? Consider these factors first…

Switching to a new mortgage or remortgaging could be a good way to save money, but it shouldn’t be entered into lightly. Before deciding to take the plunge, here are five things you need to be aware of.

Your current lender could offer you a better deal

It makes sense to shop around if you’re looking to re-mortgage, but before you do, see if your current lender can offer you a better deal. It might be cheaper to switch to a different product with the same provider as certain fees and charges can be avoided. Find out which deals you’re eligible for and compare them against what is available elsewhere.

It’s also worth asking for a redemption quote, which shows exactly how much you still owe and can help you decide how much to borrow. A small fee may be charged for this.

If you do decide to shop around, Nationwide have a range of mortgages that may be suitable if you are looking to remortgage.

The risks of borrowing more

One reason to re-mortgage is to borrow more money against the value of your property. You may be planning home improvements, but don’t want to take out a personal loan to fund the work, or you might want to borrow extra cash to consolidate your debts.

Remember, it’s important to consider all of your borrowing options carefully, and to seek independent advice if you’re unsure what to do. If you're in financial difficulties we do not recommend that you borrow or increase your debts.

Be aware that if you’re borrowing more, your monthly repayments are likely to rise. It’s important that you make sure you can comfortably afford them as your home may be repossessed if you can’t keep up with the repayments.

If you are considering remortgaging, always check the options available with your existing lender first before switching to a new lender.

The cost of switching

If you pay off your current mortgage deal before the term has ended, you may face an early repayment charge. You could also be charged an exit fee, which can often be hundreds of pounds, so check this before you remortgage.

Some lenders offer fee-free deals, but if they don’t you’ll have to pay administration costs. You’ll also need to have a valuation survey carried out. In some cases you may need the services of a solicitor to handle the legal side of your transaction, as you did when you originally bought your home.

The average cost of remortgaging is about £1,000, so use a mortgage calculator to see if it’s really worth your while.

Interest rates may change

Another reason to remortgage is to get a lower interest rate. However, if you opt for a fixed rate deal, you should also check your lender’s standard variable rate (SVR), as once the initial deal comes to an end, you will be charged interest at the standard variable rate. This may mean that your payments go up so make sure you have factored this into your budget.

For more information and advice about all the different types of mortgage on offer, speak to an independent financial adviser.

It may take a while

New regulations have come into force which change the way lenders assess affordability for mortgage applicants. This means the application process is likely to take longer than in the past, as you’ll have to provide more information about your personal circumstances than you did previously.

You’ll need to show evidence of your income, including payslips and bank statements, as well as your outgoings, including debts, household bills, childcare costs and other living costs. Lenders will ‘stress test’ your finances to make sure you can afford your repayments if interest rates rise.

For more information and guidance, check out our buying and owning a property guides.


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