Remortgage – How To Get The Best Remortgage Deals
The governments Help-to-Buy scheme, as well as other factors, have caused house prices to reach levels that are causing alarm at the Bank of England and a rise in interest rates may be the only measure that can slow them down.
It is worth considering a remortgage in the coming year before rates rise to avoid a sudden increase in your mortgage payments, so this is a quick guide to help home owners think about how they can get the best possible deal.
One incentive for getting a new deal is securing a low fixed rate for the next five years. The lowest APR twelve months ago was an incredible low of 2.5 per cent.
Deals like that may not come round again anytime soon as interest rates eventually start to rise, but there are still some very good fixed rate remortgage deals around at the moment.
Loan to Value
Amongst other factors, the rate that you will be offered on your remortgage will be based on the degree of risk your home loan presents to the lender. Lenders determine the level of risk based on the size of the loan compared to the value of the property.
This means the higher the loan to value (LTV), the higher the risk and therefore the rate of interest will rise accordingly.
Anything you can do to bring the LTV down will help as it will make you more attractive to lenders.
Post Mortgage Market Review (MMR) Lending
If you haven’t been to see a mortgage advisor for a while, you may notice dramatic changes in the rules surrounding borrowing, which have become much stricter since April 2014.
Irresponsible lending before the 2008 crash, together with the government’s new schemes to help first time buyers, has led to regulators imposing tougher new rules when it comes to borrowing.
Your mortgage advisor will more than likely want to see your bank records, your entire financial history and credit reports, as well as confirmation of employment and evidence of any savings you may have.
You should try to pay off any outstanding debt, even if it’s just a small amount, as any black marks on your credit file could potentially cause trouble when it comes to getting a mortgage.
There are generally three types of remortgage deal commonly available in Britain. These are fixed rate, variable rate and tracker remortgages.
A fixed rate mortgage is a popular choice with borrowers as it offers a degree of security. It means that the interest rate is fixed for a specified period so should the base rate of interest rise in the future, your payments will stay the same until the end of the fixed term. It is a way of future-proofing your mortgage against sudden and unexpected rises in your monthly payments.
Although a fixed rate remortgage offer peace of mind, variable rates have become more popular recently as the base rate has remained low. Whereas fixed rates are ‘fixed’ at higher levels to enable the lender to get as much out of the deal as the borrower (arguably more), a variable rate simply responds to the Bank of England’s base rate of interest. The problem with this type of loan is the uncertainty. When the base rate is low your mortgage is cheap, but when it rises it becomes more expensive. Rates have been low for six years but this is likely to end soon, therefore, many variable rate borrowers are now looking to remortgage onto a fixed rate.
A tracker mortgage is similar to a variable rate mortgage in that it follows the base rate set by the Bank of England, but plus an agreed set margin (perhaps one per cent).
If you already have a mortgage and are thinking about protecting your wealth against future changes in the economy it is important to see this as part of your long term financial plan. If you are unsure about what steps you need to take with your remortgage it is wise to talk to a mortgage advisor to discuss the best option to suit your current and future situation.