Monday, May 18

Remortgaging Deals and Information

Stock Market Investing - Remortgage Deals and Refinance Loans

Remortgages

UPDATE : Click here for latest on remortgaging deals

Want to remortgage your house ? Well in these hard times credit is of courser harder to find, now that the banking executives have run off with most of the money and need the rest to pay their pensions.
Once upon a time you could borrow up to 125% of your home's value. Nowadays you can forget about that, if you want to remorgage your home you will get the best deals if you want to borrow less than 60% of your home's value and you have a good credit history. If you borrow less than 75% then there are still some reasonable remortgage deals , 75-90% will be quite expensive and over 90% you will have to look hard to find a remortgage deal that is worthwhile. [UPDATE - Oct. 2009 : You can now find good mortgage deals at 70% LTV and the Nationwide is offering 95% mortgages]

Self-certificated morgages for the self-employed will be very hard to find. If you have a poor credit history you are going to struggle and will have to pay through the nose.

In addition to this there is the problem of falling house prices. Some of the value of your house will have disappeared and therefore your borrowing power will have been negatively affected too, because of the loan to value.
The 'loan to value' (LTV) is the amount borrowed compared to the value of the property you want to buy or remorgage. For example, if you want to buy or remortgage a home worth $200,000 and you are borrowing $180,000, your LTV is 180/2000 i.e. 90%. So clearly if your home has fallen in value then your LTV will increase.

However, there is the advantage at the moment that mortgage rates are at their lowest for generations.

Banks do nevertheless prefer people with large deposits as this will protect the banks' money should house prices continue to fall.

Why do people refinance their loans?
Well, the only intelligent reason is in order to save money by getting a better remortgage deal, a simple 1% reduction in your mortgage rate could save you thousands over the years. But people also sometimes need to remortgage to get their hands on some cash.

Sometimes you don't even need to change mortgage company to get a good remortgage deal. The first port of call is your current mortgage company, tell them you are looking for a better deal. It is better to arm yourselves with some facts beforehand though.

Take care when remortgaging however as there may be fees involved and at the moment fees are in fact increasing, such as exit fees or early repayment fees, arrangement fees, and some mortgage brokers also like to charge fees.

Reasons to Remortgage
You are buying a larger property.
You need extra cash.
You've got more money and want to remortgage so that you can pay off larger amounts or take a mortgage holiday.
If you have an endowment mortgage that has underperformed and will not pay off your mortgage at the end of the term, then you should remortgage amd consider taking out a repayment mortgage for all or part of your mortgage.
You've got other loans that charge higher rates so it might be a good idea to consolidate all your loans into a remortgage with a lower interest rate. But bear in mind that it is cheaper to borrow at 10% for 5 years than at 5% for 20 years - so a long mortgage is not necessarily the answer to your debt problems.

It is not always however a good idea to remortgage, in particular for small amounts of money. In the UK for example if you want to borrow less than £30,000 ($45,000) any savings you will make may be so small that it may not be worth while and some mortgage companies won't lend you such a small amount.

Similarly, if you are close to the end of your mortgage it may be too costly to remortgage.

What Type of Mortgage ?
First you may be tempted by an interest-only mortgage or a repayment mortgage. The wise decision is invariably the repayment mortgage, as this means the size of your mortgage is actually decreasing (albeit slowly at first) over time. With an interest only mortgage you are paying the interest only ! To pay off the capital you need some other form of investment which will pay off the capital at the end of the mortgage.

Once you have taken this first decision you then have other decisions to make,notably what type of mortgage.

Standard Variable Rate (SVR) mortgages or remortgages - the Central Bank rate plus a bit more, which changes as the Central Bank rates change.
Tracker mortgage - this follows the Central Bank base rate precisely. The interest rate tends to be a bit higher than the SVR mortgage rate. Some tracker rates also have a 'collar' below which they will not fall no matter what the base rate is.
Discount mortgages - these have a rate which is a fixed percentage below the SVR, but the discounts are only for a couple of years usually.
Fixed rate - the mortgage rate is fixed but the deal tends to be short-term - 2 or 3 years. You might get a shock at the end of the deal if rates have gone up. A fixed rate is probably better for you if you are borrowing very close to your maximum as you cannot take the risk that interest rates might go up.
Capped mortgage - the interest rate on these mortgages changes as the base rate changes but only up to an upper limit.

Consider also if the mortgage deal charges interest daily or yearly. This is very important as when you pay money back on your mortgage it comes down a lot faster if they cahrge interest daily rather than once a year.

Watch out for arrangement fees for remortgaging - these fees used to be around £200- £300 ($300 - $450), they can now be double or triple that amount. If you decide to add it to your mortgage then remember you will be paying interest on it for years (anyone would think they do it on purpose). In fact they do. It is important for mortgage and remortgage companies to keep their interest rates low so that they appear high up in the comparison tables. They therefore make up their profits by adding on fees. Moral of the story - don't rely on interest rates alone when comparing remortgage products.

There may also be a non-refundable reservation fee and a telegraphic transfer fee, a valuation fee for a survey (ha ha - they send a guy round with a clipboard who says 'yes' you can have our mortgage that'll be $500 please - I know because that's what they did to me). You get the idea.

Don't just accept your mortgage provider's buildings insurance, shop around for cheaper insurance deals.

Remortgaging will also probably incure legal fees (lawyers have to live too !).
If you are in the UK and are remortgaging and moving house,you will also have to pay stamp duty land tax, which can be anything from 1 - 4% for homes worth over £125,000.

There may also be mortgage broker fees.

To work out whether it is worth remortgaging you need to take into account all these fees, including any fees you may have to pay for paying back your existing mortgage early.

How to Remortgage?
You can do it on your own, but you will probably be better off using the services fo a broker. you will have to pay fees of course but do not go with any borker that charges more than 1.25%.

More Fees and Charges when Remortgaging

Watch out for these charges designer to cost you money for little value:-
Higher lending Charge - an insurance policy designed to protect the lender and paid for by the borrower - avoid

Mortgage Payment Protection Insurance

Aka Accident Sickness and Unemployment Insurance is supposedly designed to cover your mortgage payments in the event of accident or illness. But they are expensive and contain many exclusions and usually only covers mortgage payments for one year.

Despite all these fees and charges remortgaging is generally a good idea but you need to take a close look at all the details of any remortgage deals .
If you are looking for a reverse mortgage, which we don't recommend, see - What is a Reverse Mortgage ?

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