Published On: Tue, May 23rd, 2023
Business | 0 views

Homeowners warned of 5 ‘common mistakes’ when remortgaging that may cost ‘thousands more’ | Personal Finance | Finance


Mortgage rates are on the rise (Image: GETTY)

Millions of homeowners will pay hundreds more each month on their mortgage as they find that the mortgage rates are currently around five percent.

This may be a huge shock for those who secured their deals around two or three years ago when mortgage deals were at record lows of 0.79 percent, recorded in late 2021.

If someone’s current mortgage offer is coming to an end, they may be thinking about switching to ensure they continue to get the best deal.

With mortgages being one of the largest financial commitments many people will face in their lifetime, it is important to watch out for potential pitfalls that could increase your monthly repayments.

David Hollingworth, associate director of communications at fee-free mortgage broker L&C Mortgages has shared five mistakes commonly made by those looking to remortgage, and how they can avoid them for themselves.

interest rates

Interest rates are on the rise (Image: EXPRESS)

Waiting until the current deal ends before remortgaging

Whether people have taken out a fixed-rate, tracker or discount mortgage, their lender is likely to automatically switch them to their standard variable rate (SVR) at the end of their introductory deal, which for most people tends to be two to five years.

He said: “Mortgage lenders set their own SVR, which isn’t directly pegged to the Bank of England base rate and tends to be much higher than rates you might find on fixed-rate, tracker or discount mortgages.‌ The interest you pay with an SVR can often be double what you might have previously been paying for your fixed-rate repayments.

“It is best to start thinking about new mortgage deals around six months before your current rate is about to end, to allow time to line up a new deal and prevent being moved onto your lender’s SVR.

“If you are staying with your current lender, it can take around a month for them to process your application, but if you are switching lender this could take around three months, so it’s best not to leave this until the last minute.”

interest rates

As the cost of living crisis continues, any extra cash could be vital for families on low incomes (Image: GETTY)

Not asking how your broker is getting paid

Using a mortgage broker to help should make it much easier to find the best deal, but it is important to always ask them how they are getting paid.

He continued: “Brokers will receive a commission called a ‘procuration fee’ of typically around 0.35 percent of the mortgage amount, which comes directly from the mortgage lender, rather than your own pocket.

“A broker should always be trying to find you the best deal, but it is important to have a look around at what deals are available beforehand.

“Many brokers will also charge you a fee of around 0.3 – one percent of the value of the loan, in addition to receiving the procuration fee. If so, it may be worth asking why this is the case or consider finding a different broker who doesn’t charge a fee for their service.”

Remaining loyal to your existing lender

For many people, it can be tempting to stick with their current lender, especially if they have been with them for years and they trust them.

He added: “However, sticking with your existing lender and moving to a cheaper product on offer at the end of their current deal, could result in you paying hundreds or thousands more, in the long run.”

Even if people aren’t using a broker, it is important to shop around to ensure that they are finding the best deal, instead of just switching to the most convenient one.

Switching to a different lender can also be beneficial if people believe their home has significantly increased in value since they took out their original mortgage.

Mr Hollingworth explained if their home is worth more than before, this can lower their Loan To Value (LTV), which is the ratio of the outstanding mortgage compared to the home’s current market value. A lower percentage LTV can result in lenders offering lower rates of interest on their monthly repayments when it comes to remortgaging.

Applying for credit before remortgaging

Having credit and repaying it on time is a great way to build a healthy credit score and can help get one on the property ladder as a first-time buyer or open up lower rates if they are looking to remortgage.

‌However, he warned “be wary of taking out multiple lines of credit” in the months before remortgaging, as this can lower one’s credit score and ultimately limit their ability to access lower mortgage rates.

Not accounting for all the fees

He concluded: “While it might be enticing to chase the cheapest rates, it’s worth bearing in mind additional fees that can arise when you choose to remortgage.

“Some lenders will offer low interest rates, but then have high arrangement fees, which are used by the lender to pay for the admin costs of the new mortgage.”

Other potential fees to bear in mind when remortgaging include:

  • Booking fee – Some lenders will charge a booking fee to reserve a particular mortgage.
  • Valuation fee – This is sometimes included for free within a remortgage package and covers the cost of valuing your home.
  • Conveyancing fee – A solicitor or conveyancer is required to transfer the existing mortgage from the old lender to the new lender.
  • Broker fee – As mentioned earlier, some brokers charge a fee to find one of the best deals.
  • Early repayment charge – This is a charge that is applied if people leave their current mortgage deal before the end of its term, or if they overpay on their mortgage above a certain amount.

Source link