Borrowers have to think about remortgages under certain circumstances. The goal is to save money and to keep on paying the loan at the low fixed interest rate you first secured when you borrowed the money. Whenever your current mortgage deal is about to end, you should shop around for new fixed rates. This will save you time, money, and effort. As a general rule, do this six months before your current contract ends. This will ensure that your loan won’t revert to the bank’s standard variable rate. That could be a shock to your finances.
When should you think about remortgaging?
The original home loan lender
will give you only up to five years for a low-interest, fixed-interest rate. That’s the maximum number of years you would have to repay the loan on that low-interest rate. But whenever that end is about to come, borrowers have three to six months before to start shopping around for the best rates. Remember that the standard variable rate of most banks will be higher than the fixed interest rate you are currently in. You have to be ready for a remortgage unless you want to pay a higher fee.
How much are you going to save when you remortgage?
The difference is huge. It’s between 2% and 5% of your outstanding loan. Depending on the remaining balance of the loan, that can be tens of thousands of dollars. When you remortgage, you are essentially looking for better rates. How do you buy a new gadget? Don’t you look for the best deal in the market? That’s essentially how you should choose a mortgage rate, too. You should shop around for the best remortgage rates
, so you get your money’s worth.
Why do you want to consider a remortgage?
There are many reasons why you should consider a remortgage. Yet, the first and most important factor is your financial situation. While a remortgage is likely to reduce the repayment burden on your household, it can only be beneficial if your finances are in a better state than they were when you first took the mortgage.
Indeed, this will ensure you can enjoy better repayment rates and, therefore, can save money for further investment goals, such as investing in Ethereum, for example, or planning home improvement work. It goes without saying that there is no rule as to how much budget you can free up via a remortgage deal.
Typically, the result will depend on your current credit score, how much of the principal amount of the loan remains to pay, and the new rates you can obtain.
What if the rates start going down after you remortgage?
This is a common fear among borrowers. They fear getting left out by the lenders and mortgage brokers. While it is true that interest rates might drop three to six months from now, do you really want to take that risk of waiting when there’s already a pretty good rate in front of you right now? You need to do the math. Chances are, if the rate is good now, the difference won’t be that much three months from now.
But if the new rate is significantly lower, then you can ditch the first deal and go for the second. Of course, you’ll have to pay exit fees but do the math again if switching is worth it. The answer here depends on how much the principal amount of the loan is.
Do you start repaying the remortgage immediately?
The answer is no. Mortgage lenders will usually allow the borrower not to start repaying the loan until after the existing mortgage is fulfilled. That would be between three and six months after. Even if your deal expired in December, it should be okay to start shopping for new and better rates right now. You will then continue paying your current mortgage holder until December. You will begin repaying the new loan by January next year.
Does the credit score matter?
The credit score always matters if you’re talking about borrowing and lending money. Before you apply for a remortgage and before the bank sees your credit score, have a look at it first. Check if there are discrepancies in your credit report that could affect your credit score. Have you finished paying off a credit card debt, but you still find it in the report? Have the agency cross it off the report. That will bring your credit score up.
Can you apply to all mortgage lenders?
The ideal scenario is for you to apply for three fixed interest rates. If you apply for all of them, the lenders will see that when they get a copy of your credit report
. The number of inquiries on your financial history will appear on the report. You would look desperate, and that’s not good for lenders. Choose the three lenders that offer good interest rates.
You can reserve a rate before pursuing another much lower rate. However, the first lender should not know about the new application because they might hike up that rate or charge you extra fees. Don’t burn any bridges, so make sure you have the second lender in the bag before you let go of the earlier reserved rate.
Remortgaging shouldn’t be hard. Yes, it’s tricky but no, it shouldn’t be a difficult process. If anything, remortgaging is a bit like shopping for discounted clothes. You want to find the best rates, reserve that rate, go and look for a much better rate, then choose between these two rates. That is remortgaging in a nutshell.