Introduction
If you are a homeowner with a mortgage, and you are coming to the end of your fixed-rate period, your mortgage broker or bank may have contacted you to do a remortgage.
A remortgage is where you lock your current mortgage into a new fixed-rate or variable-rate period for a set number of years, anywhere between 1 and 10 years.
With interest rates remaining volatile due to unpredictable global economic conditions, it’s more important than ever to have control over your mortgage interest rate.
Why should I Remortgage?
Whilst remortgaging isn’t actually required, it is recommended. When your fixed rate expires, your mortgage falls onto the lender’s current Standard Variable Rate (SVR), and this is usually a lot higher than your previous rate.
As of writing, Barclays offers fixed rates as low as 3.91% for 5 years, but once expired, the rate changes to 6.49%.
What does a higher interest rate on my Mortgage mean?
- If your interest rate increases, so does your monthly payment.
- It also means more of your monthly payments will go towards paying interest rather than actually reducing your mortgage.
- If you allow your mortgage to fall onto the Standard Variable Rate set by the lender, your payments could increase, maybe even double.
Do Standard Variable Rates change?
Yes, the new rate you fall onto if you don’t remortgage can go up and down, which can cause uncertainty for mortgagees who want to know how much they are paying each month for budgeting purposes.
How to Remortgage and get the best rate?
When remortgaging, there are a few steps you want to take:
- Find out how long your fixed rate has left – If you are already out of your fixed rate, you can look for a new rate straight away. If not, you will want to check how much time is left, as moving to a new rate before your current one expires could incur charges.
- Speak to a mortgage broker– Speaking to a mortgage broker gives you access to the whole of the mortgage market, as they can view all lenders’ products simultaneously and see which one is offering you the best rate.
- Find out what your current mortgage lender is offering you– Your mortgage broker will do this for you, but if you decide to do the research on your own, contact your current mortgage provider and see what new rates are available to you, as some lenders offer more favourable rates to existing customers.
- Submit your application – Once you’ve decided which lender and product to go with, you will need to submit the application (this is called a product transfer if you are staying with the same lender). Once submitted, your new lender will run an affordability and credit check to see if they accept your application.
- Move on to the new rate – Once your current fixed rate has expired, or your new application has been completed, your new rate will start and your new monthly payments will begin.
Are there any fees involved?
Depending on your circumstances, there could be fees attached. The fees that could apply, but not always, are:
- Early Repayment Charges: If you leave your current rate early, you could be charged between 2-5% of the balance.
- Product Fee: If you move to a new lender, there may be a product fee attached to the new rate.
- Adviser Fee: Your broker might charge you a fee, but many will do it for free.
- Solicitor Fee: If you are moving to a new lender, you will need a solicitor to handle the legal paperwork. However, many lenders offer products with free solicitors for a remortgage.
I have missed payments – will it affect my Remortgage?
Having missed payments on your credit can affect your remortgage application, depending on which route you take and the type of missed payments.
Missed credit card/loan payments: some lenders will accept missed payments within 12-24 months, some won’t accept any missed payments.
It all depends on your overall credit profile.
If you stay with the same lender, they won’t run a credit search, so it won’t matter (unless you ask for more money, known as capital raising).
Missed payments on your mortgage: If you have missed payments on your mortgage, many lenders will see this as a red flag and refuse to lend, so you may have to go to a specialist lender.
If you stay with your current lender, they may also deny your application depending on the severity of the missed payments.
I want to pay a lump sum off my Mortgage, can I do this?
In a fixed-rate period, lenders usually allow the borrower to pay up to 10% of the outstanding balance each year, with some lenders like NatWest allowing up to 20% per year.
If you were to go over the threshold of 10-20%, you would have to pay an early repayment charge of anywhere between 1-5% of the overpayment.
If you want to pay more than your threshold, and you are coming out of your fixed- rate period, you can pay a lump sum towards the mortgage balance before locking into a new rate, as there are no early repayment charges when you are out of your fixed rate.
Frequently Asked Questions
Q: How Do I Find Out When My Fixed Rate Ends?
A: Ask your Mortgage Advisor or check your original Mortgage documents.
Lenders will send you an annual statement, showing how much you have paid off, what the remaining balance is, and when your rate expires. Some may even send these monthly.
Most high street lenders have mobile phone apps in which the mortgage owner can keep track of their mortgage.
Q: How Do I Make An Overpayment?
A: Typically you’ll need your Mortgage A/C details. You can then pay over the phone or via online banking.
Q: Who Has The Best Interest Rates?
A: With the competitiveness of the mortgage market in the UK, lenders change their interest rates daily, so it is impossible to define one lender as having the best interest rates.
To make sure you get the best rate available to you at the time of your application, your best option is to speak to a mortgage broker who has access to systems that allow them to see the best rate available to you and your circumstances.