Why compare remortgages
You saved your pennies to get yourself on the property ladder, you quickly settled in and everything was rosy ever after, right? Well, rarely. Families grow and their needs change. Often there’s a dilemma about whether to extend or move on to something bigger. Maybe you’re looking to do up an existing property to rent out, or maybe you’re just looking to lower your monthly outgoings. Whatever your ambitions, there are various options, from taking out a personal loan to cashing in your ISA. But many homeowners are finding that a remortgage makes better economic sense. Is it right for you? Our handy guide should help.
A lot of people decide to remortgage their property to get access to a sum of money. By increasing your mortgage you could potentially free up cash to pay for something else like an extension to your home. But of course doing this is likely to increase your monthly payments, although depending on your age you might be able to increase how long your mortgage lasts to balance this out.
Looking at new mortgage deals can also save you money on your monthly repayments if you can find one with a lower interest rate. Another option is to shorten your mortgage term, so that your home is paid off quicker and you pay less interest in the process.
Please do bear in mind that remortgaging is very rarely cost‑free - there is often an arrangement fee on a new mortgage, you will need to pay solicitor fees (although some lenders offer free standard legals) and leaving your current provider may mean they charge a cancellation penalty. So check the details of your current deal first.
Comparethemarket.com is here to help you, though. This page explains mortgages, how they work, the different types and how to find one to suit you.
The first step when you’re looking for a remortgage offer is to ask yourself a question about the mortgage: “how much can I borrow?”
To get a better idea of what remortgaging could do for you , use a mortgage calculator. There are two kinds of these. You can put in your salary, deposit, and monthly outgoings to get an idea of the total loan you might be able to get. Or, with the other kind, you enter the value of the home you’re interested in, your deposit and how long the mortgage would run, and it will show you how much the monthly repayments will be.
Those repayments are important. Remember you need to be able to afford them comfortably every month, along with all the running costs of owning a home like furnishings, repairs, household bills, council tax and insurance. And you should bear in mind that interest rates could increase over time, which, if you’re not on a fixed rate mortgage, could l increase the cost of your monthly repayments.
Comparing mortgage options
Once you have found a house that you’re interested in, it’s time to do a mortgage comparison. Comparethemarket.com makes it easy to do this, but first we should look at the kinds of mortgage that are available so that you can answer the questions on our quote page.
First, a reminder of what your Loan to Value (LTV) is. It’s the amount of your money you’re borrowing compared to theoverall value of the house. So, if you have paid off £20,000 towards your £200,000 property, you own 10% of the property: the LTV is the remaining 90%. As a general rule, the lower your LTV, the better mortgage deals you’ll find. The cheapest rates are often available for people with a 60% LTV.
Repayment or interest-only?
Next, you need to decide if you want a repayment mortgage or an interest only mortgage. With repayment mortgages, you pay off the interest and some of the overall cost of the house every month. At the end, typically after 25 years, you should have managed to pay for the whole house and the interest - you will own your home outright.
With interest-only mortgages, you pay only the interest on the loan and nothing off the capital (the amount you borrowed). So after 25 years the mortgage will still be outstanding.
Interest-only mortgages offer lower monthly payments, but you will need to show from the start that you have plans for how you will pay off the loan at the end of the term.
Fixed and variable mortgages
So those are the two categories of mortgage. You then need to decide whether you want a fixed rate mortgage or one with a variable rate.
Variable rate mortgages could be ‘trackers’ where the interest rate is above, below or the same rate as the Bank of England base rate, or fully variable, where your lender decides on a rate and can change this at any time (within the conditions of the product). . Other kinds of variable are available too, like capped or collared mortgages where there might be upper and lower interest rate limits. With any of these your mortgage payments could go up or down as interest rates change.
If you choose a fixed rate, your interest rate and your monthly payments are set at a certain level for an agreed length of time. These, and a lot of variable mortgages too, are often 2 or 3 year deals, but you can also get a 5 or 10 year fixed rate mortgage. At the end of the deal you are automatically switched to another rate, usually a variable rate.
Whether you have a fixed or variable mortgage, it can be a good idea to shop around a little before your mortgage deal ends, and move to another one if it will save you money.