In these difficult economic times you may be looking for way to remortgage your home. But you are faced with the problem that credit is getting harder to find. Back in the day you get a mortgage for 125% of the value of your home, but it turns out that maybe that was not such a good idea. But things change and now you would be very hard pressed to find evn a 100% mortgage.
The best deals available now are if you only want to borrow 60% of the value of your home or less and if you have a good credit history. If you want to borrow less than 75% then there reasonable deals available, 75-90% and you're looking at expensive deals and over 90% you may as well forget it.
Self-certificated mortgages, i.e. mortgages where you declare your own income (with fingers crossed behind your back) will be hard to find. If you have a poor credit score you will find life hard and will have are going to pay through the nose.
There is also the problem of falling house prices, although there are some signs that the real estate market is finally stabilizing (August 2009). Your house will have decreased in value anyway over the last couple of years and as a result your borrowing power will also have decreased, because of what is known as loan to value. Loan to value (LTV) simply means the amount you borrow compared to the value of the property you want to remorgage. Such that if you want to remortgage a home worth $400,000 and you are borrowing $360,000, your LTV is 360/400 i.e. 90%. If the value of your home has decreased then your LTV will have increased.
Why remortgage? Well, the only good reason is to save money. A 1% reduction in your mortgage rate can save you thousands over time. But it is also possible that you merely need to get your hold of some cash.
It is not necessary to change your mortgage company to get a decent remortgage deal. Just contact your current bank and tell them you are trying to get a better deal. They will probably want to keep your custom and so may come up with a better deal to make sure you don't dump them.
Bear in mind however that bankers do love fees so there may be multiple fees involved e.g. exit fees/early repayment fees, arrangement fees etc...
Reasons to Remortgage
You want to lower your mortgage rate
You need extra cash
You want a larger property
You've want to pay off larger amounts or take a mortgage holiday.
People with an underperfoming endowment mortgage that will not pay off their mortgage when it ends, should remortgage and opt for a repayment mortgage.
If you have other loans that charge higher rates may be a good idea to consolidate your loans into a remortgage at a lower interest rate. But keep the length of the mortgage low, it is cheaper to borrow at 12% for 5 years than at 6% for 20 years - so a long mortgage may not be a wise idea.
For small amounts of money remortgage deals are probably not a good idea. If for example you are looking to borrow less than $45,000 the savings you make will probably be so small as to be not worth the hassle and some companies will not lend you such a small amount.
Also, if you are nearing the end of your mortgage it may cost too much to remortgage.
What Type of Mortgage do you Need ?
If you have a choice between an interest-only mortgage or a repayment mortgage, then the repayment mortgage is nearly always the better choice. With a repayment mortgage the size of the mortgage decreases slowly over time. With an interest only mortgage only the interest is paid off, so you need some other investment to pay off the capital of the mortgage at the end of the term.
You then need to decide between the following :-
Tracker mortgage - this trackes the Central Bank base rate exactly, with an interest rate that tends to be slightly higher than the SVR mortgage rate.
Standard Variable Rate (SVR) remortgages - these are the Central Bank rate plus a bit more, the actual rate changes when the Central Bank changes rates.
Discount mortgages - the rates for these are a fixed percentage below the SVR, but the discounts only last for a couple of years.
Fixed rate - the interest rate is fixed but the mortgage is usually short-term - 2 or 3 years. You may get a nasty surprise at the end of the deal when rate are readjusted. A fixed rate is better if you are borrowing close to your maximum as the risk that interest rates might go up is one you cannot afford to take.
Capped mortgage - the interest rates change in line with the base rate but up to a fixed upper limit.
Another point to watch is that it is better for interest to be charged daily rather than yearly as the mortgage comes down a lot faster.
Fees for remortgaging used to be in the region of $300 - $450, nowadays they may be double or three times that amount. If you opt to add it to your remortgage you will be paying interest on it for years. So don't just look at interest rates, look also at the fees involved.
There may be a non-refundable reservation fee, a telegraphic transfer fee, a valuation fee for a survey, legal fees, mortgage broker fees.
You need to take into account all these fees to calculate whether it is worth your while remortgaging .
If you do decide to remortgage then it is best to use a broker, he will charge you fees of course but if they charge more than 1.25% go somewhere else.
More fees to watch out for :-
Higher lending Charge i.e. an insurance policy - avoid if at all possible it is ueseless as far as you are concerned.
Mortgage Payment Protection Insurance/Accident Sickness and Unemployment Insurance is expensive, of little use and only covers mortgage payments for one year.
That is a lot of fees ! Despite all this, remortgaging is generally a good idea as it can save you a lot of money over time, but take a close look at all the details.