What to look for in a remortgage
As much as borrowers are examined and considered by lenders, those looking to remortgage also need to look at their lenders with an equal level of scrutiny, in order to find themselves the best possible deal.
The most obvious things to consider are the interest rates of the remortgage and the total figure that will need to be paid off. These are far from the only things to thing about however, as there a quite a number of other things to take into consideration.
Other things to think about include:
Loan-to-value and deposits
It is important for you to try and find a remortgage with the best loan-to-value ratio possible. If you have a large amount of money in the form of savings, and can afford to pay a bigger deposit, you can normally get a lower loan-to-value ratio.
Usually, this lower loan-to-value ratio is likely to grant you lower interest rates, so paying a bigger deposit is usually beneficial in the longer term.
Another important aspect of your remortgage application is the interest that you will be required to pay on the money that you have borrowed. Obviously, the lower the APR that you will be required to pay, the better.
The lower the rate of interest that you can get on your remortgage, the lower the total amount of money that you will have to pay back over the term of the loan.
Variable or fixed interest rate
The two main types of mortgages and remortgages available are fixed rate and variable rate mortgages.
The interest charged on a variable rate mortgage can, as the name would suggest, fluctuate and change. A variable rate will reflect the month to month base interest offered by a lender. This means that some months may be more expensive than others, as they may have a slightly higher amount of interest payable.
As a result of this relative volatility, it is important to save enough money as a backup to cover any increases to the bill. Of course, there can be positives to be found in a variable rate remortgage, as it is very possible that the interest rate can be lower than the average month, meaning that you will be able to save a bit of money from time to time.
Alongside these potential savings is the fact that variable interest rates tend to be a little bit lower than fixed-rate mortgages in the first place, meaning that they can be cheaper in the long run.
With a fixed rate mortgage, the borrower will know the cost of each month’s bill in advance, meaning there is no need to try and work it out, or worry about whether it will be more than the previous months bills.
The interest rate is fixed for a certain length of time, with this tending to be either a two-year fixed term or a five-year fixed term.
This makes budgeting and long-term financial planning considerably easier, as the borrower will be able to factor in the outgoings of the mortgage, secure in the knowledge that their bill will remain the same.
The downside of a fixed-rate mortgage is that the interest rate is often higher than a variable interest rate.
At the end of the agreed term the interest rate will usually change to the lender’s variable interest rate.
How the interest is calculated
Interest can be calculated several ways: daily, monthly, or annually. Depending on how it is calculated, it may work out slightly cheaper or more expensive.
Discount mortgages can also help to keep the interest rate low. However, discounts on interest usually only last for a fixed term, and you need to make sure you know what the interest rate will be once the discount ends. You will need to be able to afford to pay the interest once the discount ends, or look into remortgaging.
Mortgage term length
The length of the term of your mortgage is very important. While it may seem as though the length of your mortgage is only worth considering in the long-term, it can affect the amount that you will be required to pay each month.
The term of the mortgage sets how long it will take for the borrower to pay back the borrowed amount and as such, the shorter the term, the larger the individual payments will have to be, but the sooner the mortgage will be paid off.
The longer the mortgage term, the cheaper each individual payment will be, but the borrower will be indebted for longer, and will usually pay more in interest over the term of the mortgage.
You will also need to consider how flexible your mortgage is, in terms of any future remortgages, and in terms of the changes in the interest rates.
With a number of mortgages, if you want to pay some extra to reduce the term time of your mortgage, then it is possible that you may be charged for this as well.
Charges can be made on some mortgage deals if you want to change anything, and sometimes these charges can be very restrictive.
Some mortgages can even come with the option for a “payment holiday”, which can be an attractive extra to have on a mortgage deal.
Read the small print
Regardless of what kind of mortgage you opt for in the end, it is essential that you know every bit of information about it that you possibly can.
Make sure the bank has explained everything to you, that you understand all of the key information; you should also ensure that the bank discloses any additional charges that you might incur during the course of your mortgage.