Best Mortgage Deals
Advice, help, information and guidance on the best mortgage deals available

Best remortgage deals

best mortgage deals by AnnaIn my day ( now I'm showing my age) you took out your repayment mortgage, fully expecting to pay the same lender for the next 25 years - how times have changed. Now days, you have to re-mortgage constantly to get the best mortgage deals available - its a bit like moving jobs - if you stay with the same company you tend not to move up the corporate ladder very quickly. It's better to move from company to company, each time to a better position.

So what is re-mortgaging, how does it work, and why should you consider it on a regular basis. ( please note I say consider it, as it is not essential you do, and in some cases it is advisable not to, as we will see)

Best remortgage deals explained

A re-mortgage is simply the process of replacing your existing mortgage deal, with one that is hopefully cheaper, and perhaps more flexible. You may also want to change if your personal circumstances have changed and you are looking for a different type of mortgage arrangement ( such as moving from a fixed to variable rate, or an interest only to repayment). Now I say hopefully as there are several costs to consider when changing lenders, not least will be any early redemption penalties. You may be looking to remortgage to release some equity from your property for some building work, to finance a wedding, or perhaps a luxury such as a yacht or car. Whatever the reason, you will have to consider very carefully which are the best mortgage deals available. Now, one of the reasons for remortgaging is where you have positive equity in your property ( negative equity is the reverse problem and one we will be hearing a great deal about in the next 2-3 years sadly)

Remortgage deals - Positive Equity

Positive equity simply means that your property is worth more than the amount you owe to the mortgage provider, so let's look at a simple example. Suppose you purchased your house 10 years ago for £200,000 with a cash deposit of £40,000, and an interest only mortgage of £160,000. Now, ten years later your property is worth £350,000 and the capital amount you owe on the mortgage is still the same ( this is an interest only mortgage remember), but your deposit has now grown from the original amount of £40,000 to £190,000 ( £350,000 - £160,000). So in ten years the equity in your property ( or in other words the % of the property that you own and have paid for ) has increased from 20% (£40,000) to 54% ( £190,000). This in essence is how property speculation works. When property prices are rising fast, speculators will constantly release these cash sums from their portfolio, buying more and more properties with the released cash, and constantly remortgaging. This only works when property prices are rising.

When property prices fall, then the equity in your property ( the % you have paid for and own)  may fall below the mortgage amount borrowed - this is negative equity and sadly many homes are re-possessed once this starts to happen. So in the above example had prices fallen and the property was now only worth £150,000, then you still owe £160,000 and you are in negative equity by -£10,000.

Why Re-mortgage?

Many lenders today, offer introductory deals, which at the time can offer the best remortgage deals. These often have two or three year lock in periods, when exit charges and penalties are high. At the end of the period, the lenders will hope that inertia will set in, and you simply won't bother to move, as it is a lot of work and effort. Whilst some don't bother, I urge you to check out the latest rates and market offers, as rates will have changed, the market will also have changed, and there may be new and better deals available. Switching lenders regularly can and does make sense. as long as you are careful and disciplined in your approach. So there are several reasons to remortgage as follows :

1. Your existing mortgage is coming to the end of an introductory discount period.

2. Your personal or financial circumstances have changed

3. Market rates have fallen substantially and you are looking for a better mortgage deal

4. You want to release some equity from your property

5. Your are involved in property investment and want to buy more properties

Where to Start Re-mortgaging

The first step is to make sure you understand any exit penalties which may be imposed by your current lender should you switch - this is vital as any penalties may wipe out any gain in moving to a new lender. Next talk to your existing lender - they may offer you a better deal to keep your business particularly if you are simply looking to release equity, and if you are BE HONEST - don't lie about why you want the money - if it's for a boat or car, tell them - don't say it's for home improvement if it isn't! Next start looking for the best remortgage deals, and make sure to cost in all the mortgage administration  fees and set up costs of the new mortgage - don't just look at the monthly repayments.

Finally make the switch to a new mortgage provider, but only if it makes financial sense. If the exit charges are several thousand pounds, with the new lender charging set up fees,  and all your are saving is a few pounds a month, then it's not worth changing. So check everything carefully, and remember with repayment mortgages and offset mortgages, these should be considered for the long term, and not for short term remortgaging.

Now let's look at a popular mortgage for the property investor, the buy to let mortgages market, and see what you will need to consider in finding the best mortgage deals.

 

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