Remortgaging is what happens when a homeowner switches to a new mortgage deal (with a new or existing lender), and this applies also when remortgaging with bad credit (but the choice of lender may be limited). People most commonly remortgage when the current discounted interest rate is about to end.
When that happens, the borrower will be moved to a long term variable rate agreement. These rates are normally higher than those that are offered on new mortgages – this is the reason why this point is so popular with people looking to remortgage. It should be noted however that those wanting to remortgage with bad credit will end up paying higher rates of interest anyway.
Things to consider when remortgaging
Variable Vs Fixed rates
You will most likely have to pay at a higher rate at first if you choose to fix it, as opposed to using a tracker. This should not be surprising though because you will be afforded security in the knowledge that you will always know exactly what your payments will be from month to month for the next few years. For those that need to manage their budget carefully, paying this little extra is worth knowing just what is leaving your account and when.
That being said, there are those that will happily go for a tracker, the slight added risk to their budgeting and take advantage of the short term lower monthly payments. Both fixed and variable rates are available for those remortgaging with bad credit, too, but the rates will still be higher.
A problem with variable rates is that nobody can say when the base rate will fluctuate or by how much. There is precious little point in trying to guess or ‘work it out’ either as the chances are pretty strong that you won’t get it right. Certain trends in a given area can be watched for though, and if you have reason to believe that your payments may go up, into uncomfortable or unaffordable territory, then go for the security of fixed rates.
On first glance the lower rate mortgage may look the better, cheaper deal but that may not actually be the case. It is important that you consider the effect of arrangement fees too. After looking around at your options you may find it is actually more cost effective to make payments at a slightly higher interest rate – if setup costs are cheaper. Taking these kinds of things into account can save you a fair amount of money over time, but if you aren’t sure of what to look for a mortgage broker will be able to help you. This approach could be especially important if you are remortgaging with bad credit.
There are going to be valuation and legal fees to consider too, so you need to keep those in mind when you are adding everything up. These fees are not going to be as high as when buying a property, but your new lender will need valuation survey and there will be paperwork to be completed by a lawyer.
It is worth keeping in mind that there are some lenders that provide services free for those that are remortgaging so it is worth considering and it could work out cheaper that way in the long run too. If you are not sure how you go about figuring which deal is the best one for you, a mortgage broker will be able to help you out.
How much equity you have can make a big difference in the kinds of mortgages that you will qualify for. If you have the cash to make the deposit, you will find that the best possible rates are more readily accessible if you are able to make a deposit of 25% and sometime even more.
Generally speaking, the more that you can lay down on a deposit the more favourable the repayment options are going to be. This is another instance where ‘shopping around’ and comparing offers is really going to pay off.
Charges for early repayment
One question that you are going to have to ask yourself, or should ask yourself at any rate, is how long do you want to be attached to your current deal for? Like any other type of loan, the sooner you pay it off the more you will save over time… That’s how it is meant to work, anyway.
You will see, when comparing mortgage products, that the majority will charge an Erc (early repayment charge) which will apply during the introductory period. If, for example, you have a two year fixed rate mortgage you will be charged a fee for paying off the mortgage inside the first two years.
Not all remortgaging products have an early repayment charge though. The majority of lifetime trackers are totally fee free which, as options go, makes them very flexible indeed.
Fees for leaving your current mortgage agreement
After taking the decision to remortgage, and the process has come to an end (this can take around a month), you are going to be charged what is known as an exit fee. This is just standard practice and the fee is to cover the costs generated by the administrative process of closing the current mortgage account.
How much the fee will be is going to depend on the lender you are with. The most that you can be charged is around the £295 mark. The fee that you will actually be charged will be printed on your existing documentation for the mortgage you currently have.
This stated fee will not have changed – lenders cannot alter the amount during the mortgage term, the FSA (Financial Services Authority) saw to that a while back.
Of course, all of these fees will weigh slightly heavier on your shoulders if you are remortgaging with bad credit but with proper planning and sound advice you can still walk away with a suitable, if expensive, deal.