Since December 2021 when it was 0.1%, the current base rate for mortgages has soared. The base rate announced in August 2022 by the Bank of England is at a whopping 1.75%. This sudden and dramatic increase in the cost of mortgages may have you wondering whether remortgaging your property is an option that could save you money.
In this article, our experienced estate agents in Newham are sharing their tips on what things you should consider if you are thinking of remortgaging your property.
What you can find in this article:
- Check Your Loan-to-Value Ratio
- Consider the Term
- Do Your Research and Get Help
- Check the Terms Offered by Your Current Lender
- Choose Your Remortgage Terms and Conditions Carefully
Check Your Loan-to-Value Ratio
Our estate agents in Newham recommend you start by finding out your current mortgage’s loan-to-value ratio. The loan-to-value (LTV) ratio is calculated as the difference between the amount of the loan and the property’s current market value. This ratio is used by lenders to assess risk before approving a mortgage.
To check what your LTV is, divide how much you still owe on your loan by how much you initially borrowed and multiply by 100. Chances are that your old mortgage’s LTV ratio is lower than that of a new mortgage.
However, our estate agents in Newham emphasize that there is still a silver lining to this. Namely, as you have been making repayments towards your current loan, you will have also increased how much of the property you own. This means that if you now want to remortgage it, the new mortgage will not apply to the initial percentage, but to a reduced one. For example, if you took out your current loan for 80% of the property and have been repaying the loan for more than 2 years, you will most likely only have to remortgage about 75% of the property.
Our estate agents in Newham also mention that you can also do this if the property’s market price has increased significantly since you took out the loan. For this, the lender may require you to obtain a valuation.
Consider the Term
As most property owners have fixed mortgage rates, your next step should be to find out when the fixed term ends. It is usually from 2 to 5 years. Our estate agents in Newham recommend you do this because as soon as your fixed term ends, the lender’s standard variable rate (SVR) will start applying to your loan and this may translate into a big change in monthly payments.
Ideally, you should make the switch to a new mortgage before the fixed term ends but no later than 6 months before it expires. However, if the end of the fixed rate term is far away, you should not remortgage the property mid-term. The reason for this is that the lender may charge you an early repayment fee that you will have to pay in addition to the fees for getting the new mortgage approved.
Combined, these fees may end up costing you more than simply sticking with your current mortgage.
Do Your Research and Get Help
As with anything else in life, having an expert by your side can save you a lot of time, trouble, and money.
Our estate agents in Newham recommend you consider talking to a mortgage broker and getting professional advice on your remortgage options. It’s better to have all the information before making a decision that may impact the rest of your life and a mortgage broker will be up to date on all the latest news and regulations.
If you are considering remortgaging your property, start your research early and contact a specialist to see what the cheapest deals are. They will also be able to give you tailored offers.
Check the Terms Offered by Your Current Lender
It always pays to get in touch with your current lender before contacting another. In certain cases, lenders have special offers for existing clients. This means you may get a better quote from your bank than you would from another. Especially today, when lenders are fighting for clients, you may find it’s a better deal to stay on with your old one.
According to our estate agents in Newham, this will also be beneficial since not changing lenders means you won’t have to undergo credit and other checks to get the remortgage approved. Some lenders also offer lower arrangement fees for this type of transaction since a remortgage is considered a product transfer.
Choose Your Remortgage Terms and Conditions Carefully
Although the most common fixed-term mortgages are for 2 to 5 years, you can also find offers for longer fixed terms. Our estate agents in Newham recommend you consider a mortgage term between 10 and 15 years. This will keep your budget safe if rates continue to rise.
However, this is a general recommendation. Depending on your specific circumstances and plans, you may find that the rate suits your budget better if you choose a 2 or 5-year fixed term. And there is also the possibility that rates return to normal. In this case, a shorter term may be best.
Another aspect our estate agents in Newham recommend you pay attention to is arrangement fees. Different lenders will have different upfront fees for the new mortgage and reading the fine print on each of them may save you some money.
In some cases, lenders ask for fees up to or even above £1,000. In other cases, you may be able to get a new mortgage without any fees at all. Therefore, don’t take only the initial rate into consideration and be mindful of all the details.
If you are interested in purchasing, selling, or letting a property in East London, contact our experienced estate agents in Newham today at 0207 055 0441 for exclusive offers and professional advice.