Remortgage Information And Tips
Remortgages and Remortgaging Deals
You may think that given the very low mortgage rates at the moment that this is the ideal time to look into remortgage deals for your home. It may be, but then it may not be. Let's face it banks are not there to make you rich, so you need to tread carefully.
Check out the following information before you decide to take the plunge.
Not so long ago a bank would lend you up to 125% of your property's value. Nowadays however banks have decided they had better actually only lend to people who have a chance of paying the mortgage back. So if you are looking to remortgage your home the more money you are willing to put up yourself the better deal you will get.
If you want a remortgage of less than 60% of your property's value and your credit history is good then you will be offered the best deals. If you are looking to borrow less than 75% then you will still be offered a reasonable deal. A loan of 75-90% will be rather expensive and over you will have a hard time finding a 90% remortgage deal that is worth your while.
If you are self-employed then self-certificated mortgages (i.e. think of a number mortgages) are now hard to find. If in addition your credit history is poor then you will have to pay through the nostrils.
Your remortgaging conundrum is further complicated by the phenomenon of falling house prices. Your house will probably have fallen in value over the last year or two and your borrowing power will therefore also have diminished, due to what is known as loan to value. 'Loan to value' (LTV) is the amount you want to borrow compared to the value of the home you want to remortgage, e.g. you want to remortgage a home worth $300,000 and you want to borrow $200,000, your LTV is 200/300 i.e. 66%. If your home has fallen in value then your LTV will increase.
One thing in your favor is that mortgage rates are low.
But rule no. 1 is that banks at the moment prefer people with large deposits so try your best to borrow somewhere in the region of 60% of the property's value.
Why remortgage?
Well, to save money usually by getting a better remortgage deal. A 1% reduction in your mortgage rate could end up saving you thousands of dollars. People do however sometimes remortgage because they need the cash. This is not such a good reason but it sometimes can't be avoided.
The beauty of remortgaging is that you don't even need to change mortgage company. The first place to look for a better mortgage is your current mortgage provider, just get in touch and tell them you are looking to remortgage. If they've got any sense they should offer you a better deal to stop you going elsewhere.
If you do decide to remortgage then it is essential that you look at the fine print and see what fees are involved. Mortgage companies love to quote low interest rates so that they can get to the top of the comparison tables. What they don't often quote is the list of fees involved which can significantly increase the costs- fees such as exit fees, arrangement fees, early repayment fees, and some mortgage broker fees.
Reasons to Remortgage
You want to buy a larger home.
You need the money.
You want to pay off larger amounts from your mortgage.
You've got loans elsewhere at higher rates so you want to consolidate them into a remortgage at a lower rate.
Remortgaging is not. however always a good idea, particularly for small amounts. In fact if you want to borrow less than $45,000 (£30,000 in the UK) any savings made will be so small that it probably isn't worth the effort and some mortgage providers won't let you borrow such a small amount.
Likewise, if your mortgage is close to be fully paid off anyway, it may cost too much to remortgage.
What Type of Mortgage ?
If you have the choice, choose a repayment mortgage not an interest-only mortgage. As this means the amount you owe will decrease over time, whereas an interest only mortgage means you have to take out insurance to pay off the capital of the mortgage at the end of the mortgage.
Which Rates ?
Standard Variable Rate (SVR) mortgages - this means the base rate plus a bit more. The SVR changes when the base rates change, but does not track it precisely.
Tracker mortgage - this tracks the base base rate precisely. The interest rate for a tracker mortgage is generally a bit higher than for an SVR mortgage.
Discount mortgages - for these the rate is a fixed percentage less than the SVR, but the discounts only last a couple of years.
Fixed rate - the rate is fixed but the mortgage tends to be short-term - 2 or 3 years. A fixed rate is probably a good idea if you are borrowing close to your maximum, as you cannot run the risk of interest rates going up.
Capped mortgage - the interest rate changes with the base rate but is capped at an upper limit.
Check whether the mortgage charges interest daily or yearly. Daily is better as your mortgage will come down faster.
Fees
Arrangement fees for remortgaging - these can be anything up to $1000 -$1500 so check. If you add this fee to your mortgage then you pay interest on it for years. This is another trick to help banks keep their mortgage interest rate low for comparison purposes.
Non-refundable reservation fee and telegraphic transfer fee, a valuation fee for a survey.
Legal fees (lawyers have to eat too !).
In the UK if you remortgage and move house, there is also stamp duty land tax, 1 - 4% for homes worth over £125,000.
Possible mortgage broker fees.
You need to take all these fees into account and also any fees you may need to pay for paying back your existing mortgage early, before deciding whether remortgaging is worth while.
How to Remortgage?
You are probably better off using a broker, even though you may have to pay fees, as they can get access to better deals, but avoid any broker that charges more than 1.25%.
More Fees and Charges
Higher lending Charge - an insurance policy that protects the lender but is paid for by the borrower - avoid
Mortgage Payment Protection Insurance - aka Accident Sickness and Unemployment Insurance - expensive and has many exclusions - avoid if possible.
Finally despite the long list of fees, it is nevertheless a good idea to remortgage as it can save you a lot of money in the long run - just make sure you check out all the details before signing on the dotted line.
You may think that given the very low mortgage rates at the moment that this is the ideal time to look into remortgage deals for your home. It may be, but then it may not be. Let's face it banks are not there to make you rich, so you need to tread carefully.
Check out the following information before you decide to take the plunge.
Not so long ago a bank would lend you up to 125% of your property's value. Nowadays however banks have decided they had better actually only lend to people who have a chance of paying the mortgage back. So if you are looking to remortgage your home the more money you are willing to put up yourself the better deal you will get.
If you want a remortgage of less than 60% of your property's value and your credit history is good then you will be offered the best deals. If you are looking to borrow less than 75% then you will still be offered a reasonable deal. A loan of 75-90% will be rather expensive and over you will have a hard time finding a 90% remortgage deal that is worth your while.
If you are self-employed then self-certificated mortgages (i.e. think of a number mortgages) are now hard to find. If in addition your credit history is poor then you will have to pay through the nostrils.
Your remortgaging conundrum is further complicated by the phenomenon of falling house prices. Your house will probably have fallen in value over the last year or two and your borrowing power will therefore also have diminished, due to what is known as loan to value. 'Loan to value' (LTV) is the amount you want to borrow compared to the value of the home you want to remortgage, e.g. you want to remortgage a home worth $300,000 and you want to borrow $200,000, your LTV is 200/300 i.e. 66%. If your home has fallen in value then your LTV will increase.
One thing in your favor is that mortgage rates are low.
But rule no. 1 is that banks at the moment prefer people with large deposits so try your best to borrow somewhere in the region of 60% of the property's value.
Why remortgage?
Well, to save money usually by getting a better remortgage deal. A 1% reduction in your mortgage rate could end up saving you thousands of dollars. People do however sometimes remortgage because they need the cash. This is not such a good reason but it sometimes can't be avoided.
The beauty of remortgaging is that you don't even need to change mortgage company. The first place to look for a better mortgage is your current mortgage provider, just get in touch and tell them you are looking to remortgage. If they've got any sense they should offer you a better deal to stop you going elsewhere.
If you do decide to remortgage then it is essential that you look at the fine print and see what fees are involved. Mortgage companies love to quote low interest rates so that they can get to the top of the comparison tables. What they don't often quote is the list of fees involved which can significantly increase the costs- fees such as exit fees, arrangement fees, early repayment fees, and some mortgage broker fees.
Reasons to Remortgage
You want to buy a larger home.
You need the money.
You want to pay off larger amounts from your mortgage.
You've got loans elsewhere at higher rates so you want to consolidate them into a remortgage at a lower rate.
Remortgaging is not. however always a good idea, particularly for small amounts. In fact if you want to borrow less than $45,000 (£30,000 in the UK) any savings made will be so small that it probably isn't worth the effort and some mortgage providers won't let you borrow such a small amount.
Likewise, if your mortgage is close to be fully paid off anyway, it may cost too much to remortgage.
What Type of Mortgage ?
If you have the choice, choose a repayment mortgage not an interest-only mortgage. As this means the amount you owe will decrease over time, whereas an interest only mortgage means you have to take out insurance to pay off the capital of the mortgage at the end of the mortgage.
Which Rates ?
Standard Variable Rate (SVR) mortgages - this means the base rate plus a bit more. The SVR changes when the base rates change, but does not track it precisely.
Tracker mortgage - this tracks the base base rate precisely. The interest rate for a tracker mortgage is generally a bit higher than for an SVR mortgage.
Discount mortgages - for these the rate is a fixed percentage less than the SVR, but the discounts only last a couple of years.
Fixed rate - the rate is fixed but the mortgage tends to be short-term - 2 or 3 years. A fixed rate is probably a good idea if you are borrowing close to your maximum, as you cannot run the risk of interest rates going up.
Capped mortgage - the interest rate changes with the base rate but is capped at an upper limit.
Check whether the mortgage charges interest daily or yearly. Daily is better as your mortgage will come down faster.
Fees
Arrangement fees for remortgaging - these can be anything up to $1000 -$1500 so check. If you add this fee to your mortgage then you pay interest on it for years. This is another trick to help banks keep their mortgage interest rate low for comparison purposes.
Non-refundable reservation fee and telegraphic transfer fee, a valuation fee for a survey.
Legal fees (lawyers have to eat too !).
In the UK if you remortgage and move house, there is also stamp duty land tax, 1 - 4% for homes worth over £125,000.
Possible mortgage broker fees.
You need to take all these fees into account and also any fees you may need to pay for paying back your existing mortgage early, before deciding whether remortgaging is worth while.
How to Remortgage?
You are probably better off using a broker, even though you may have to pay fees, as they can get access to better deals, but avoid any broker that charges more than 1.25%.
More Fees and Charges
Higher lending Charge - an insurance policy that protects the lender but is paid for by the borrower - avoid
Mortgage Payment Protection Insurance - aka Accident Sickness and Unemployment Insurance - expensive and has many exclusions - avoid if possible.
Finally despite the long list of fees, it is nevertheless a good idea to remortgage as it can save you a lot of money in the long run - just make sure you check out all the details before signing on the dotted line.
