Remortgage Problems and Issues
Buying a home is likely to be one of the biggest financial decisions you will ever have to make and therefore it is crucial that you choose the best mortgage deal for you. However during the life of your mortgage you may decide to review your mortgage deal as you may have seen better deals on offer. If you switch your mortgage to another mortgage product or lender it is called remortgaging. This process has the potential to bring huge financial benefits however if you make the wrong choice you could lose out.
Before deciding to remortgage please read through the following issues on the checklist. If any issues apply to your situation it does not necessarily mean that you should not consider remortgaging. Lenders will often try to entice new customers by offering them special discounts or deals. Ensure that you consider each of the following four issues on the checklist:
CHECKLIST
Check 1: Are there redemption fees/ penalties?
What are they?
You must first find out if you have any redemption fees/ penalties attached to your current mortgage. Read through all the small print. Any special offers you may have received on getting your mortgage usually only last for a set period of time. Redemption penalties are costs that you will have to pay to end your agreement early by either switching to another product/ mortgage provider (remortgaging), or selling your house. Redemption fees are designed by lenders to ensure that you are tied in to the agreement long enough for them to make a profit. Redemption penalties can be particularly severe within the first year. This is to try and ensure that the costs that the lender endures in setting up the mortgage are always covered, regardless of whether or not you stick with the mortgage. The duration of the penalty period will vary from mortgage to mortgage, though a great many products have no early redemption charges whatsoever.
I have redemption fees/penalties, should I remortgage?
The key is to add up the total redemption fees/penalties to see whether they offset your potential savings. If they don’t it may still be worth remortgaging however if they do the whole process of switching (remortgaging) would become futile.
Check 2: Are there valuation fees?
What are they?
Your prospective mortgage lender may charge you for valuation fees. This is because most mortgage lenders will not rely on your original survey when assessing the remortgage value of your home.
There will be valuation fees, should I remortgage?
Again you need to check that any valuation fees do not offset your savings. However some lenders may offer free valuations as a way to make their offer more appealing or attractive.
Check 3. Are there legal fees and administration fees?
What are they?
Sometimes legal and administration fees will apply which could cost you roughly between £300 and £500.
There will be legal fees and administration fees, should I remortgage?
Again you need to add up the total fees to ensure that they do not offset your savings. However, as with the valuation report fees, lenders may choose to refund these fees if you agree to use their recommended mortgage loan insurance and legal products.
Check 4: Are there risks?
What are they?
Using your home as collateral for borrowing more money can be risky. As with your current mortgage, if you default on repayments you may risk losing your home through repossession. Make sure you've thought it through properly and chosen the deal most suited to you.
Are there any situations when remortgaging is not right for me?
Yes, if you have a small mortgage of £25,000 or less. This is because you may not be able to save much, or it may be under the mortgage lender's minimum remortgage amount.