So here are the top 10 common mistakes that people make when remortgaging and how to avoid them.
Top 10 mistakes people make when remortgaging:
1. Not starting the remortgage process early enough.
Completing remortgage can take a week or 6 months. If you don’t start the remortgage process early enough, you could end up paying a standard variable mortgage rate. The lenders standard variable rate mortgage is generally a lot higher which could cost you hundreds of pounds extra each month.
The best way to avoid paying the lenders standard variable mortgage rate is to start the process early. We generally complete an initial remortgage assessment about 6 months before your current fixed or tracker mortgage rate ends, and set the time scales to start the process. Generally we can switch you over to a new lower fixed or tracker rate mortgage the day after your current fixed or tracker mortgage rate ends.
2. Using the lenders free legal incentive as part new remortgage package.
To switch your mortgage over to a new lender you will need a solicitor or conveyancer. Sometimes the new mortgage lender will offer a free legal incentive and cover the cost of this or offer a cashback of around £250 towards your own solicitor.
This is where to problems can start. The average cost of a solicitor to complete a remortgage is around £500. So, you can see there is a shortfall of £250 if you take the cashback and pay for a solicitor yourself.
Why would pay extra when the lender is offering it for free?
The lenders free legal solicitor’s incentive should only be considered if you fit into the following categories:
- A remortgage loan that is exacting the same as what you have.
- No one is being added or removed from the property deeds.
- There are no second charges.
- The property is freehold.
- You are not in a hurry.
- You are on a very tight budget.
Anything that is slightly out of the ordinary or time is a factor you should instruct your own solicitor or conveyancer, take the cashback and pay the extra.
It will be worth it in the long run.
Our biggest cause of unhappy remortgage customers and errors are caused by the lender’s free legal teams.
3. Not getting proper mortgage advice when choosing a rate type.
Your existing mortgage lender won’t want you to leave and they may offer you a new rate on an unadvised basis.
e.g. Your current mortgage lender will show you a list of their products and ask you to choose.
The risk of doing this is the rate type, length, penalties or fees being charged may be completely wrong for your circumstances. This may cost you thousands in the long run.
Getting proper mortgage advice from a mortgage adviser will ensure the mortgage product that is recommended fits your current needs and your future needs are considered.
We will look at thousands of different mortgages for you, to ensure we find you the best mortgage rate.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP THE REPAYMENTS ON YOUR MORTGAGE.
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4. Getting the value of their property wrong.
Most lenders will offer you a loan based on the current value of your home and the loan being applied for (Also known as equity). The lender will employ a surveyor to look at the property and give a best guess if the property was sold what price could be achieved within a 3 month period. They will ask the surveyor to provide the lender with some evidence of recent property completions in the last 3 months to support the final valuation figure.
When you apply for a remortgage you may be tempted to increase the value of your property or offer a finished value after proposed home improvements are finished and apply for a rate that isn’t available based on the equity in the property.
Your property could also be worth more than you think and a better interest rate may be available to you, because you are a lower risk mortgage customer.
When considering your remortgage application we will check land registry for recent completions and contact local estate agents to ensure we get a figure that is as close as possible to your properties true value and base our mortgage advice on these figures.
5. Extending their mortgage term back to the start.
When changing your mortgage over to a new lender it is important to keep reducing the term in line with your current term. If you keep taking the term back to 25 years or 30 years you will be paying thousands in extra interest and risk still paying a mortgage into retirement.
We all want to see the back of our mortgage and getting your mortgage paid off early could be more viable than you think.
During our application process we will carefully consider your monthly budget and offer to the shortest term we can.
6. Not updating their life, lifestyle and family insurance.
Borrowing extra money on your mortgage and not increasing your insurance is easily done, you are focus on the mortgage and put off the insurance till the end.
This can then very easily be forgotten.
There are lots of reasons to remortgage, whether it be for home improvements, debt consolidation or just getting a better rate. When you change your mortgage terms it is important to review your protection and make sure that if the worst happens, your mortgage loan and family are taken care of. Over time your insurance needs change. We all sleep better at night knowing we have set everything up so if the worst happens, you have a plan B.
7. Not declaring everything to the mortgage lender.
Mortgage lenders need to demonstrate any new mortgage loan is affordable to you. To do this they will consider certain types of income and all or your expenditure. They will check your credit file and go through your bank statements.
It is important to declare all your regular expenditure at application stage as the lender may not see it at the start of the application process and find it at the end and change their mind on whether to approve the mortgage loan.
The most common things to be missed are hire purchase agreements on cars or 0% finance credit agreements.
During our application process we go over everything before we make our mortgage recommendation. Saving you time and worry.
8. Not checking how much they owe to their current mortgage lender.
There is nothing worst and getting to the end of your remortgage and then realising that you haven’t borrowed enough to pay off your current loan.
Things that often get missed are the extra fees and charges that your existing mortgage lender levies to pay off the loan. Early redemption fees are also date sensitive so a completion date has be set after these fees don’t apply.
The best thing to do is call your current lender and ask for a redemption statement before you apply for a remortgage. Also check with your current lender to find out the date the early redemption fees no longer apply to your mortgage loan.
This will prevent any nasty surprises at the end.
9. Cancelling the direct debit with your current lender to early.
Cancelling your direct debit with your current lender before the mortgage has been paid off is risky. Any delay in the remortgage application could mean your current mortgage isn’t paid and goes into arrears. This could affect your credit score and the new mortgage lender may cancel your application as a result.
We suggest waiting for written confirmation from your current lender that your mortgage is paid off before you cancel it.
10. Not borrowing enough for home improvements.
Home improvements can cost more than you expect. Not borrowing enough to complete the works could mean having to apply for a further loan at a less favourable rate or worst still having to pay thousands in penalties to switch to a new lender.
Many lenders will allow over payments of up to 10% per year of the mortgage balance without penalties. We suggest you consider borrowing an extra contingency fund to cover any extra and if you don’t use the money it can be paid back to the remortgage lender if penalties don’t apply.
How to remortgage.
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