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What is residential re-mortgage?

Residential remortgage is the process of transferring your “mortgage” from one lender to another or negotiating a new mortgage agreement with your present lender. This may enable you to obtain a lower interest rate and lower your monthly mortgage payments, raise more funds for home renovations or retirement, consolidate debts, or rent out your last house when you relocate. It does not usually entail moving or taking up a second mortgage on the home.

What are the common misunderstanding in residential remortgage?

Homebuyers frequently misunderstand the term remortgage as when they are just transferring from one product to another with the same lender; this is actually known as product transfer. Residential remortgage entails the removal of one legal charge on a property and its replacement with another in favour of a new Lender. The propensity to remortgage is highly dependent on an individual’s circumstances, and due to the high costs involved, there may be prepayment penalties and other costs involved. Please call us at Expert Mortgage Brokers for further clarification.

What fees are involved in remortgaging? 

There are many fees associated with remortgaging, so you must assess whether the savings outweigh the costs. A smaller monthly payment may appear appealing, but if you haven’t factored in the charges of remortgaging, it might cost you a lot of money. Consider some of the most prevalent remortgaging fees. 

Early Repayment Charges: If you opt to quit your current mortgage contract before it expires, you will be charged early repayment fees by your current lender. It’s critical to figure out how much this cost will be, as it might easily outweigh any savings you would get from a new mortgage. 

The amount of interest you pay depends on the sort of mortgage you have and how long you’ve had it. The penalty for paying an early mortgage decreases as the loan term lengthens. For example, with a five-year tracker, the early repayment penalty may be 5% (of the total mortgage debt) in the first year, reducing by  1% each year after that.

Exit Fee/Release of Deeds: Your present lender receives the Deeds Release/Exit Fee. Although not all  lenders charge a Deeds Release/Exit Fee, you should expect to pay up to £300 if yours does. 

Fees for Arrangements: Your new lender will charge you an arrangement fee to set up your new mortgage, which is non-refundable if something goes wrong. This cost may be a flat fee or a percentage of the loan amount, depending on the lender. The bigger the arrangement charge, the better the interest payments, so talk to your mortgage counsellor about whether a low-interest rate is worth the large price. You can pay your new lender the arrangement fee upfront or add it to the cost of your mortgage. It’s worth noting that if you add the cost to your mortgage, you’ll have to pay interest on its loan term. As a result, if you can pay it in full upfront, you will save money in the long run. Many lenders offer no-fee services. 

Booking Fee: Some lenders demand a non-refundable booking fee to get a favorable rate on your chosen remortgaging arrangement. This is normally between £100 and £2000 and is paid upfront to your new lender or can be added to the loan.

Fees for Conveyancing: Conveyancing fees are paid to your solicitor and cover the legal process needed to transfer your mortgage from one lender to another. Your lawyer will also oversee the payment of your previous lender’s pending debts. 

Some remortgaging arrangements include a free legal package; however, the lender chooses the solicitor in these circumstances, so you can’t expect quick and efficient service. In most cases, the conveyancing charge is roughly £300. If you’re remortgaging to buy out a partner or add someone to the mortgage, you may have to pay additional conveyancing fees to your solicitor. Before your solicitor begins the paperwork, make sure you inform them of your situation. 

Fee for Valuation: A lender may request a valuation for security purposes so that they may be sure they can recover their losses if you fall short on your mortgage payments. Like buying a new house, many remortgage packages include a free valuation, and you won’t have to pay for a structural examination or a home buyer’s report. If you must pay for the valuation, the cost will vary depending on the size and value of the home, but it normally ranges from £200 to £1000.

Fees for Mortgage Brokers: Your mortgage broker may charge a fee if you remortgage through them,
which can range from a fixed cost to a percentage of the loan. A fixed price is often between £300 and £500, but it may be costly if you give your broker a % fee. For example, a one-percentage-point loan of £150,000 costs £1,500. If you must pay your broker in advance and something goes wrong, you will lose the money; therefore, always ask if you can pay after the job is finished.

How much equity is my property?

The difference between the considered value of your property and the amount you still owe on your mortgage is your home equity. In layman’s terms, it denotes the percentage of your home that you own. For instance, if your house is worth £200,000, but you owe £120,000, you have £80,000 in equity. The remainder (your mortgage balance) is the portion of your home that the bank still owns.

If property’s value has increased, or you’ve paid down a major chunk of your mortgage, a new loan or refinance seems logical. If you have a lot of equity in your house, you’ll have additional financing alternatives.

Credit History 

Good credit history can lead to genuine benefits, such as access to a wider choice of services, such as loans, credit cards, and mortgages. You could also gain from lower interest rates and higher credit limits. However, understanding your credit history is the first step toward increasing it if it isn’t where you want it to be. In any case, knowing your credit history is beneficial. It’s your financial footprint — how corporations assess your financial stability. In addition, a clean or reputable credit history indicates that,
lenders consider you a lesser risk.

Your credit report includes details from past credit cards, loans, overdraft charges, and regular bills. Prospective lenders will perform a credit check to see whether you will be able to repay your loan. The outcome will influence the remortgage deals you can get. Your credit report can show you how well you’ve paid off debts in the past, including your current mortgage. As a result, it can demonstrate to lenders whether you’re a trustworthy candidate.

Fixed-Rate

If you have a one-year fixed-rate mortgage, your interest rate will remain the same for the loan term. This is your initial rate; after a year, you’ll either be automatically transferred to your lender’s standard variable rate (SVR), or you’ll move to another package. Although one-year fixed-rate mortgages are unavailable, alternative short-term fixed-rate mortgages starting at two years are available.

You can forecast your monthly repayments with a fixed rate because your payments are not affected by interest rate changes during the arrangement term. If you prefer to stick to a set budget and don’t want to risk your monthly repayments increasing, this may be appealing.

Some lenders offer cheaper interest rates for homeowners who will fix for a short period. For example, remittance to a shorter fixed rate could help you avoid early repayment costs (ERCs), which are normally highest towards the beginning of a longer fixed period. However, getting a deal means that future packages may be less competitive after your deal time has ended if interest rates have since risen. In addition, if you remortgage with another lender, you may be charged set-up fees for the new package, as well as the same administrative and affordability checks as previously. 

Variable rate 

Variable rate mortgages feature an interest rate that fluctuates following the base rate to which they are linked. Your monthly payments will change in line with that rate for the duration of the initial arrangement if you have this form of a mortgage. Unlike fixed-rate mortgages, variable rate mortgages have a degree of uncertainty. You must be comfortable with the prospect that your payments may grow as well as fall, and you must be able to afford them if they do. 

Despite the degree of risk that a variable rate mortgage entails, you may be able to save money on interest if rates decrease or lenders offer low introductory rates that scarcely change over time. You can also be searching for a less restrictive agreement, such as one that doesn’t charge you an early repayment penalty if you remortgage or relocate. 

Self employed 

When you’re self-employed, buying or refinancing a home may not be as difficult as you think. In today’s market, self–employed borrowers have access to the same mortgage programmes and cheap rates as other borrowers. Your responsibility is to shop around for the best loan programme and lender for your specific circumstances. Reviewing at least three mortgage offers will assist you in obtaining the best interest rate and terms.

Self–employed mortgagors have access to the same loan options as “traditionally” employed borrowers. There are no special rules that make it more difficult for self–employed people to secure a mortgage. You must fulfill the same conditions for credit, debt, down payment, and income as other candidates. Documenting your revenue is the part that can be difficult. As a business owner, contractor, freelancer, or gig worker, proving your cash flow may necessitate more paperwork than W–2 workers. Being self–employed, however, should not prevent you from purchasing a property or refinancing as long as you meet lending standards and can demonstrate consistent, stable cash flow.

How much can I borrow?

You can borrow between 3xce and 4.5x of your annual income for a mortgage. If you’re applying for a mortgage in conjunction, multiply your joint income by four (although some lenders may let you borrow more). Here are some measures to take if you want to figure out how much you can borrow in the:

Use a mortgage calculator.
Mortgage lenders have been significantly more selective in who they lend to since the 2008 financial crisis. In addition, lenders will now undertake affordability checks on you before lending you money to verify that you can pay back on time.

Examine your credit report.
Affordability is determined by thoroughly examining your income, outgoings, and overall debt. They’ll also look over your credit report. Lenders also want to know that you’ll be able to make the payments even if interest rates rise by 4% above the Bank of England base rate. This is referred to as stress testing.
Furthermore, you may be eligible to borrow the maximum amount if you already have an existing account with the lender or have a substantial deposit.

Obtain an agreement in principle
In principle, you can file for an agreement to receive a more precise maximum mortgage figure. While an agreement in principle isn’t the same as a formal mortgage offer, it is a rough valuation of how much a lender could be willing to offer you.

How much deposit will I need?

Consider these two things when calculating how much you’ll need to save for your mortgage deposit: typical home prices and monthly repayment costs. In most circumstances, you’ll need a 10 per cent down payment to acquire a residential mortgage, which means you’ll need a 90 per cent loan. The loan-to-value ratio, or LTV, is the ratio of the loan size to the property value. A 90 per cent loan is also known as a 90 per cent loan-to-value (LTV) mortgage. However, if you save more and can put down a 15 or a 20% deposit, you’ll have a better likelihood of being accepted for a lower-cost mortgage. The lowest mortgage rates are usually only available if you have a substantial deposit or a lot of equity if you’re remortgaging.

Is it cheaper to rent or buy a house?

In most cases, it appears that renting is the most cost-effective option. However, this isn’t always the case. Several lifestyle concerns, such as whether you desire freedom or stability, your job aspirations, and whether you want a location to call your own genuinely, can all influence your selection.

Decide the duration in which you will stay in the same location.
Buying a home may make sense if you are positive you will stay in it for at least five years. That’s because it could be an excellent fit both emotionally and financially, as you can add personal touches to make your house seem truly yours.

Calculate the difference between renting and buying.
Because of the upfront fees, renting can often be less expensive than buying a home. All included a down payment, closing charges, moving costs, improvements, and other property upkeep activities. However, that’s not to mean you should jump into homeownership straight away. If you’re focused on owning a home, it’s OK to rent for a few years, save up, and then buy. The cost savings of becoming a homeowner assume that you would stay in your home for a long time and may not include maintenance costs. However, even with home upkeep costs, the savings can be significant if you pay off your mortgage and continue to live in the home.

Examine your financial circumstances.
It’s vital to remember that you must be realistic about your financial condition while picking between renting and owning. After you’ve calculated the costs of renting, weigh it against buying. Be honest about whether you can afford extra upfront costs like a down payment, repairs, moving expenses, and purchasing new furniture.

Interest only or repayment

Repayment mortgages are less expensive in the long run than interest-only mortgages, but they have higher monthly payments. The following mortgage, for example,

£841.05 monthly with a repayment mortgage
£553.92 monthly with an interest-only mortgage

Would cost;

Type                 Totalcost         Interest paid
Repayment       £252,316        £92,316
Interest only     £326,175        £166,175

Repayment mortgages benefits are:

  • Because the amount you owe reduces each month, you pay less interest overall. Later in the mortgage’s term, a larger portion of each payment pays off the principal.
  • Lesser interest rates later in the mortgage term because your outstanding balance will be smaller, and you can negotiate better bargains.
  • If you make all your mortgage payments, you will own your home after the term.

The monthly instalments will be greater than with an interest-only mortgage, so make sure you can afford them.

Interest only mortgages benefits are:

  • Because they solely cover the interest, the monthly payments are lower.
  • You are in charge of your finance. For example, you can select whether to save money to pay down your mortgage or put it toward home upgrades.
  • If your assets do well, you may be able to earn. You might put money aside to pay off your mortgage faster or keep a lump sum to spend on anything else.

Most borrowers are not suitable for interest-only mortgages. Only take one out if you understand the risks and have a repayment strategy in place to save enough money by the end of the term.

How long does a purchase take?

Buying a property in 2022 will take roughly 18 weeks, but that is only if everything goes smoothly during the process. It takes an averagely of 6 to 12 weeks to look for and find the right house, 2 to 4 weeks to get a mortgage offer, 16 weeks for conveyancing (including signing and exchanging contracts), and 2 to 4 weeks to close the sale, receive the keys, and move into your lovely new home. Instead of seeing the entire process as one big adventure, break it into phases to make it easier to understand and manage.