What is Remortgage and How Does It Work?
A remortgage is a new mortgage on a property that you use to pay off your previous mortgage. In short, remortgage is the process of switching onto a new mortgage deal. It may involve either the same lender or a new one. Now the question is why you might need to remortgage a piece of property. Here’s how it works.
Things to Consider While Remortgaging
- Consider Value of Your Home
House prices are mushrooming. Most people don’t know the exact value of their homes. You can also be unaware of the house prices. Contact real estate agents to know the exact value of your house. Real estate agents will estimate the latest price of your house. Your house value will have a great impact on remortgage. The higher the value of your property, the lower the loan-to-value ratio, which means you’ll pay a lower interest rate.
Though, interest rates are important don’t be fanatical about them especially while considering a mortgage deal. You should be considerate about fees as well. Many lenders will offer mortgage deals with very low interest rates, but they'll protect themselves from losing good profit by including a hefty fee for the processing. The amount of the fee depends upon the size of your remortgage. Before finalizing the deal scrutinize both interest rates and fees to avoid large payments.
- Check Your Credit Score
Remortgaging is not that easy. A lender will examine your financial condition to ensure that you are able to pay your mortgage. Lenders check repayment history through credit card scores. Your repayment history will give a lender an idea of how capable you are to pay money. This is so because your credit card history includes overdrafts, loans, mortgages, mobile phone, and utility payments. So set your credit history right in order to ensure all your cards are up to the mark.
- Things You Shouldn’t Do
There are certain things that you shouldn’t do before applying for a remortgage. One of them is applying for credit just before a remortgage. Another thing to avoid is huge expenditure a few weeks before applying for remortgage. Third thing that you shouldn’t have is overdrafts.
How Does Remortgage Work?
- Get Your Paperwork a Few Weeks before Remortgaging
Prepare yourself six or eight weeks before remortgaging. You should get your all papers ready – the latest mortgage and bank statements. This will tell you how much you are paying for the current mortgage.
- Lender’s Valuation
Don’t forget that a lender will evaluate the value of your property. The lender’s valuation might involve checking the exteriors of the property. There are certain chances that a lender will underrate your property. If you notice that you’re losing a better rate, you can ask the lender to reconsider. You can take the help of real-estate agents for estimating the value of your property.
- Better Interest Rate
When you apply for a mortgage, you will get fixed and discounted rates. However, these rates will last for five or six years. Once the deal expires, you’ll be moved onto higher rates. So when your deal period terminates, look for better interest rates in the market and switch to a new mortgage deal to save your money.
- Consolidate Debt
You might be tempted to borrow more money to pay off your other debts. Though, interest rates on mortgages are normally lower than rates on personal loans and credit cards, you may end up paying too much. Therefore, try prioritizing clearing your dues first.
- Find out How Much It Will Cost
Look out for discounted and fixed cashback deals. These deals might make remortgaging expensive. Don’t forget to consider exit fees. Exit fee is a fee that a lender will charge for closing your mortgage. While closing the deal, check whether the exit fee is the same as mentioned in your mortgage agreement. These fees can’t be hiked by lenders once the agreement is signed. So be careful about exit fees.
- Apply for a New Deal
You can apply for a new deal if your existing lender does not come up with something worthy. Starting early is conducive as you have a chance to look somewhere else if your request is turned down.
Once the deal is clinched, you will be asked to fill in an application form and provide proof of income such as bank statements. Once all the fees are paid and the lender's survey is completed, you will be given a mortgage offer. After finalizing the deal, you will get a completion statement.