Today’s historically-low interest rates mean there are big advantages to remortgaging your home. You might well save money by reducing your monthly payments. You could also release equity. Or you could use the savings to pay for home improvements. Are you considering grabbing one of the competitive re-mortgage offers available on the market now? Here’s how to ensure you’re ‘remortgage ready’.
Action Plan for Remortgaging Your home
1. Work out how much equity you’ve got in your home
The more equity you’ve got, the better your options. And the lower your loan to value (LTV). If you owe £135,000 and the house is now valued at £180,000, you have £45,000 equity. That £45,000 is equivalent to a deposit for someone buying a property. Get your house valued before your lender sends a valuer. Ask for valuations from three estate agents or use a free house price valuations guide. Bear in mind the effect of your LTV. This is the advice of Martin Lewis of Moneysavingexpert.com. He says: “Realistically, you’ll need to be borrowing less than 95% of its current value. And to get the best remortgaging deals, less than 60%.”
2. Do your research to find the cheapest possible remortgages for your circumstances
There’s lots of comparison information available online. This is either through comparison sites or best buy tables. Yes, the vast number of remortgaging products out there can seem confusing. And this is where a good mortgage broker can help. But doing your own research first will give you a ballpark idea of what’s available for remortgaging your home.
3. Make sure you factor in lender fees
While rates have plummeted, remortgaging fees have risen. So calculate the cost over your deal term. Doing this isn’t complicated. Simply divide the fee by the monthly term. Say you’re looking at a two-year (24-month) fixed mortgage and the fees are £2,400. Then the cost will work out at an extra £100 a month. A caution from Martin Lewis. “Once your loan falls below a certain amount — say around £50,000 — it may not be worth switching lender. This is simply because you are less likely to make a saving if the fees are high. In fact, some lenders won’t even take on mortgages below £25,000. The smaller your mortgage, the bigger the effect any fees you pay to remortgage will have.”
4. Get your finances in order for the affordability checks
April 2014 saw the introduction of the government’s Mortgage Market Review. This means all lenders now have to do more to show that borrowers can afford to pay back their mortgages. The only lender that won’t do this is your current one. But they’re unlikely to be offering you a better deal. We’ll break down the steps below to take to improve your chances of having your remortgage application accepted.
5. Be clear on your credit score
The first thing lenders will do is check your credit score so get a leap ahead of them. You can get a free credit report by signing up with a credit rating agency. You don’t need to pay to do this. Some do it for free, such as Clearscore or Callcredit. Or you can sign up for a free monthly trial with Equifax or Experian. With these two, remember to end the trial before 30 days is up. Make sure your credit report is correct before you apply to remortgage. If you do find your credit score is wrong, you’re entitled to contact the agency and have it corrected. You can also go to the free Financial Ombudsman to do this if you need to.
6. Make sure you’re on the electoral roll
If you’re not, then sort this out fast. If you’re not registered to vote, you’ll be unlikely to get a remortgage. Lenders use the electoral roll to check your identity.
7. Pay off any outstanding loans
This goes for bank loans or money owing on credit cards. Set up a direct debit to make at least the minimum repayment on credit cards. That way you’ll never be late or miss a month. Ideally, try and pay all these off before you apply for your mortgage so you’ve got a clear slate. If you can’t manage this, then at least slash your debts. Aim to reduce what you owe to at least 50% of your credit limit. Say it’s £10,000, then use less than £5,000. And don’t take out any more loans while you’re going about remortgaging your home. Above all, stay clear of Payday loans. These are a red flag for lenders.
8. Assess your bank statements as a lender will
Most lenders will ask to look back at your bank statements for up to six months. So it’s better not to have gone overdrawn in this period. Watch your spending across this period and be frugal. Lenders will look at all your outgoings. That includes your utility and phone bills, childcare costs, grocery bills and motoring costs etc. Pay everything on time. Even one missed mobile phone bill payment could affect your remortgage application.
9. Stay in the same job for at least six months
You’ll improve your chances of remortgaging your home if you’ve been in the same employment for at least six months. Lenders want to see you’ve a regular income. Expect to have to show pay slips over the last 3-6 months. If you’re self-employed, it can be harder to remortgage. You’ll need full evidence of your income. This’ll usually be three years of business accounts, signed off by a certified accountant. Remember you’ll get assessed on your self-employment profits, not your turnover.
10. Consider using a mortgage broker
This goes for whether you’re employed or self-employed. But in the second case, you’ll find one especially helpful. A broker is basically a qualified and regulated mortgage adviser. They’ll do a lot of the legwork for you. Lenders vary a lot in terms of whom they’ll accept for remortgaging. Brokers will have a strong understanding of the products you’re likely to get accepted for.
Want straightforward advice on the best deals for remortgaging your home? Get in touch with us here.