Myself and Mr Challenge have been homeowners for about 18 months now. We bought our house, using the governments mortgage guarantee scheme. This meant that we could get a 95% mortgage but, it also meant that we didn’t necessarily get the best interest rate available (we currently have a rate of 3.99% fixed for two years). But it got us on the property ladder. When we re-mortgage we know we can get a much better deal. Working it all out is really time consuming, what we needed was a guide to re-mortgaging for the first time!
Re-mortgaging is an important decision. We want to be mortgage free as soon as possible (you can read more about that challenge here.) and a decent deal will get us a step closer to achieving that goal. So, we need to be certain that we are making the right decisions. We’ve been working on this for some time, researching all the options. I’ve learnt all sorts! Based on our experience here’s a guide to re-mortgaging for the first time.
What Do You Need from a Mortgage?
First things first. It’s important to remember that a good deal is only a good deal, if it’s the right deal. You need a mortgage that suits your needs, so the first step towards re-mortgaging involves asking yourself some important questions. Here’s what you should be asking yourself…
How long do you want to stay in your current home? If you’re thinking of moving any time soon, then a fixed rate product for example, might not be suitable for you because if you move before the end of your deal you risk early repayment charges
Are you expecting any significant changes to your finances? Are you changing jobs, retraining, having a baby, waving children off to university (I know that sounds weird but our kids will be 20, 19, 18 and 17 when we re-mortgage for the first time!) If this is the case then you might want some certainty about your outgoings for a certain period of time. If so, then a fixed rate product might be the best option for you.
How risk adverse are you? Personally, I’m pretty risk adverse. I like certainties. So, for me I’m all about the fixed rate, all the way! But some people are a bit more relaxed about it and are happy to take the risk that a tracker or variable mortgage will be more cost effective for them
What is the current financial climate like? For the last few years there has been some financial uncertainty and this has affected mortgage rates. The Bank of England Base Rate is starting to rise which immediately impacts some types of mortgages. If you want to insure yourself against interest rate rises, then this will affect the type of mortgage that you choose.
Once you’ve asked yourself those questions, then you’ll have a bit of an idea of what you are looking for from a mortgage other than saving money.
How Much is your House Worth?
Next, you need to find out what your house is worth. Get a few estate agents round for a free valuation, so that you have an accurate idea of how much your house is worth. The value of your house affects the Loan to Value ratio (LTV). The lower the LTV the better, because this will help you to get a better interest rate on your mortgage.
Our house has risen in value quite a bit. Based on what we thought it was worth we had a LTV of 85.6%. Following our estate agent valuations, we found that actually the house was worth quite a bit more than we originally thought pushing our LTV right down to 74.57%!
Generally speaking loan rates drop every 5-10% of LTV depending on the lender, so knowing how much your house is worth and getting the mortgage company to agree can make quite a bit of difference!
Do Some ‘Shopping’!
Get yourself on some different mortgage comparison sites to see what deals are available out there. What are the interest rates? Fees – How much? Does it make a difference if your LTV drops a couple of percent, down into the next ‘bracket’? Which products do you think would be suitable for your circumstances?
Get some advice
Honestly, it’s worth it. Get your homework and paperwork together and go and see a mortgage advisor. In fact, go and see more than one, that way you can compare the advice, the deals and really make an informed decision.
Mortgage advisors often have access to exclusive deals, or they have good working relationships with a particular lender, both of which can go in your favour. But remember that they work on commission. So sometimes they might push you towards a deal because it gives them the best deal.
Another thing to consider is that some advisors charge for their advice when people are re-mortgaging. Not all advisors do this, so you may want to shop around.
Pin me for later!!
Well done, you’re ready!
Once you’ve done all that you’ll be in a position to really make an ‘informed decision’ You cannot underestimate the long term financial impact a lower interest rate on your mortgage will have on you.
Because of the drop in our LTV from 95% when we got the mortgage two years ago to 74.5%, if we go for a 2 year fixed deal we will be able to reduce the interest rate we are paying from 3.99% to around 1.4%, which over a two year fixed deal will save us about £9800. Not an insignificant saving!
So work out what you need, shop around and get some advice! Happy Saving!