Your mortgage is your biggest and most important financial commitment and yet once it’s in place it’s easy to forget about it and simply let it run without taking the time to see whether you’ve got the best deal. If you have been paying your mortgage for several years you will have increased your amount of equity in the property and because this makes the loan to value ratio lower, you should be able to secure a better mortgage deal.
Why do you want to re-mortgage?
When considering if this is the right time to re-mortgage, you need to be clear about why you are doing it. There are three main reasons why people re-mortgage:
- To extend the term of the loan to reduce the monthly premium. If you are struggling to meet your monthly payments or you want to free up some money for home improvements or lifestyle changes, this can be a good option, but you need to be aware of the ultimate cost of this line of action. How much additional interest will you pay by increasing the term of the loan and is this increase in your level of debt worth the short-term gain?
- To save money by securing a better interest rate. You’ve increased your equity in the property, interest rates are low, this could be a good time to shop around and see if there’s a better mortgage out there than your current one. Be aware that there are costs involved in re-mortgaging and factor these in to your calculations: arrangement fees, solicitor’s fees, a cancellation penalty on your old mortgage and a house valuation.
- To shorten your mortgage term. If you are in a strong financial position you may decide to re-mortgage to pay off your mortgage quicker and secure a better rate in the process. Clearly, your monthly premium will increase but your long-term saving will be considerable.
When you shouldn’t re-mortgage
If you want to re-mortgage to pay off expensive debt, such as credit cards, you need to be aware that you might end up paying far more, because your mortgage loan is over a much longer period. If you have had credit problems since taking out your last mortgage you will be not be able to secure a better mortgage deal than your existing one.
Enhance your credit score before you re-mortgage
Check your credit score and make sure that you are not inadvertently damaging it.
- Make sure that you are on the electoral roll. Lenders check information that’s held on you with three main credit reference companies: Callcredit, Experian and Equifax and being on the electoral roll is an important confirmation of identity.
- Lenders look at credit used as a percentage of credit available, so if you close an account with a high credit limit you could harm your credit score.
- Each time you apply for credit, a search is performed and recorded. Multiple applications over a short space of time will suggest that you are a bad risk and will prevent you from getting that good mortgage deal.