The holiday season is traditionally a time when people start to look ahead to the following year. It’s also the perfect time to get your finances in order for the New Year, and what better place to start than your home.
Homeowners who are nearing the end of their fixed term mortgage deal and have no immediate plans to move, should check if it’s the right time to remortgage.
What is remortgaging?
Remortgaging is when you swap your current mortgage deal for another one. You can remortgage with your current lender or choose a different one.
People remortgage for various reasons, including to get a better rate, buy another property, pay off other debts, make home improvements, or to avoid falling onto an expensive Standard Variable Rate (SVR).
What is a Standard Variable Rate (SVR)?
An SVR is the rate at which you will be charged interest when your fixed term mortgage deal comes to an end.
It’s an automatic process and not remortgaging onto a new fixed term deal will mean you slide onto an SVR. Trussle has calculated that some 800,000 homeowners in the UK are currently sitting on an SVR.
Why does it matter?
SVRs are often more expensive than fixed terms deals and so unknowingly slipping onto one could increase your monthly outgoings significantly.
Previous research from Trussle found that the difference between being on a fixed term deal and an SVR is worth on average £4,500 a year, which is equivalent to 15% of the average salary in the UK.
Due to intervention by the Bank of England, interest rates are extremely low at the moment and this means many fixed rate mortgages are competitive, especially for those that have equity in their properties.
A remortgage calculator can help you determine how much you could save by remortgaging.
How much does remortgaging cost?
Remortgaging can cost anything from nothing to several thousand pounds. The amount varies depending on things like if you change lenders and what fees they charge.
Before choosing your mortgage, it’s important to know exactly how much it will cost you in the long run. This includes your monthly repayments, plus fees, minus any cashback.
How to remortgage
Step 1 – Check for charges
You may have to pay an early repayment charge if you remortgage before the end of your initial period. This could be up to 5% of your mortgage balance. The percentage is set out in the terms and conditions of your mortgage.
Speak to your lender if you don’t know how much you’d have to pay, as it may be best financially to wait until your deal is about to end before you remortgage.
Step 2 – Look at your credit report
If you remortgage with your current lender, they might not check your credit history. This is as long as you’re not borrowing more or making big changes such as changing the mortgage length or type.
Otherwise, a lender will look at your credit report. Your credit report or file is a detailed record of your credit and debt history. It includes things such as missed debt repayments, and how much credit card and loan debt you may have. Your credit report helps a lender decide whether to give you a mortgage.
It’s a good idea to look at your credit report before you remortgage. If you apply and the lender turns you down it will affect your credit history.
This could make it harder to get a loan in the future. For those who want to learn more about credit reports and scores, Trussle has a useful credit score guide.
You can check your credit report for free by contacting a credit reference agency (CRA), such as:
- Experian
- Equifax
- TransUnion
If your credit report could be improved, consider doing so before you remortgage. Trussle has a bad credit mortgage guide with tips on how you might be able to improve your credit score.
Step 3 – Find out how much your home is worth at the moment
You’ll get a better mortgage deal the more equity you have in your home. Equity is the value of your home minus how much you owe on your mortgage.
Your home might have gone up or down in price since you bought it. Ask an estate agent to value your home, or check a house price website like Zoopla. This will give you a more accurate figure to use when you look for deals.
Step 4 – Get a new mortgage
You can find remortgage deals by:
- Asking your current lender
- Using a comparison website
- Speaking to a mortgage broker
Miles Robinson is head of mortgages at online mortgage broker, Trussle
