The Bank of England are due to meet on the 4 November to look at interest rates, and these are widely expected to increase for the first time since August 2018. I know this because I spent some time looking online last week to see whether there were likely to be any food/diet/exercise related incentives that I could blog about in the Budget, which is due on Wednesday this week (last year we had ‘eat out to help out’ and then the reduction in VAT for hospitality), but everywhere I looked people were talking about the predicted interest rate hike, more than the budget!
This was interesting to me as our current mortgage deal is due to come to an end shortly and I had just started ‘shopping’ for a new rate so I thought I would take a deep dive in to remortgaging and share what I had found as it can be quite a minefield as I have so recently been reminded!
Introduction: The Basics of Remortgaging & What You Should Know
Remortgages are loans that allow homeowners to repay their old mortgage with a new one. This is done in order to get better loan terms or lower monthly payments or sometimes if you want to borrow more money – for example for home improvements or to consolidate debts.
When you remortgage, you’re essentially taking on a new mortgage on the house you’re already living in. Usually when you take out a mortgage you get a fixed term deal with a preferential interest rate and when this deal comes to an end you remortgage to take out a new deal at another fixed rate to keep your payments low, rather than switching to the standard variable rate which at the moment is higher I think than pretty much every fixed rate deal.
In our case, our house has increased in value and we have also paid off quite a lot since our last remortgage, this means we have a better loan to value rate (LTV) and are therefore likely to find better interest rates.
If your home has fallen in value and is worth less than what you owe on it, then remortgaging might not be the best idea for you at the moment although people are unlikely to find themselves in this position at the moment as property prices have not fallen.
How to Find the Right Lender for Your Home Remortgage
One of the first steps is to figure out how much you can borrow which you can do using this handy calculator. Once you know how much you can borrow it is definitely a good idea to check your credit rating before you contact any lenders. You should do this even if you think your credit rating is good as sometimes there can be mistakes or things in your credit report that you’re not aware of and if so you’ll want to sort these before any lenders start credit checking you.
There are many lenders that provide remortgage loans and they all have different lending criteria which may narrow the field for you, depending on your own personal circumstances.
There are some factors to consider when looking for a lender:
– The interest rates offered by the different lenders,
– How much money you need
– Whether the lender offers a product that matches your circumstances and financial requirements
– The additional services offered such as free valuation and legal assistance
Whilst you’re comparing rates with lenders one of the things you’ll want to know is exactly what your monthly repayments are going to be as let’s face it, how much is actually going to come out of your account each month is probably as important to most people as what the interest rate is going to be! I used this remortgage calculator which made it simple to check the monthly repayments on the different rates I was looking at (they also have handy charts showing things like what your capital repayments and interest payments will be over the years). All I did was plug in the amount we wanted to borrow, the various interest rates I was being quoted by different banks and the remaining term of my mortgage and it told me what my monthly payments would be for each different rate. Obviously a lower rate means lower monthly payments, but it definitely helps to understand exactly what you’re going to be paying out each month.
How to Choose the Best Mortgage for Your Situation
A fixed rate mortgage is a type of mortgage with a pre-determined interest rate and repayment plan, which remains the same for a fixed period (or sometimes even the entire duration of the loan). Fixed rate mortgages will typically provide borrowers with the most stability over time. Fixed mortgages don’t change as often as variable rate or tracker mortgages, so they can be very beneficial for those interested in long-term financial planning.
Typically, fixed rate mortgages are cheaper with the added benefit of knowing that the rate won’t increase during the fixed period. However if you want to get out of a fixed rate before the end of the fixed term period then you will usually have to pay an early termination fee (usually a percentage of the outstanding balance of the loan). If you’re thinking of moving home soon then you might choose to stick with the standard variable rate rather than fixing your deal, although these days most fixed rate mortgages are portable so you can usually take your fixed rate deal with you to your new home when you move!
Debt Consolidation/Money for Home Improvements
When it comes time to remortgage, one of the things you can look at is whether it would save you money to consolidate any debts that you have with a higher interest rate than your mortgage so that you pay one lower monthly payment. This might give you more money each month meaning that you could over pay your mortgage or reduce the term so that you are mortgage free sooner. Be careful though – if you use your mortgage to clear your credit card debt make sure you cut your card up so that you’re not tempted to rack up more credit card debt!
Another thing you could think about when remortgaging is whether you need to do any home improvements – new kitchen/bathroom/landscaped garden? Home improvements are typically expensive, but adding them on to your mortgage means you can borrow the money at a very favourable rate.
It goes without saying that if you don’t need this extra money then you should absolutely leave the equity in your property, as this will give you a better LTV and ultimately could result in an even better rate.
Conclusion: Should You Remortgage?
Currently mortgage interest rates are as low as they have ever been. They are so low at the moment there is only one direction that they can go from here, and that is up – and there is a lot of noise that that increase could start as early as November this year and then continue to increase for a number of years before levelling out!
If your deal is coming to an end, then now is definitely the time to take action and secure yourself a new deal at a good rate before the rate increases begin. If you’re deal isn’t due to come to an end for a year or so then it might be worth taking a look at what your early termination fees are and whether it would cost you less in the long run to pay the early termination fees now to secure a new deal at the current rock bottom rates, rather than risking a huge rate hike when your current deal expires!