For many people who are relatively new home owners, the differences between buying a house and remortgaging can be confusing. Surely, they’re not that different, right?
A remortgage is the process of negotiating a new mortgage deal when a homeowner’s present deal expires. It’s different from taking out a mortgage to buy a home.
There are many reasons why, as a homeowner, you’d want to remortgage.
First, your current mortgage deal is running out and you need to negotiate a new one. Here, you may be able to stay with your current provider but on more favourable terms (dependent on rate fluctuation in accordance with the market) – what’s called a ‘product transfer’.
You can also switch to a new lender (a ‘remortgage’) for the same reason, though you should note the cheapest rates don’t always mean the best value in the long term.
When it comes to remortgaging, getting the timing right is important. Unless you like paying hefty penalty fees, it’s not always worth leaving your current lender until your current mortgage deal ends.. To avoid paying penalties its recommended to start talking to an adviser about your options six months prior to your current deal ending.
Another reason you might remortgage is to borrow cash against your property. How much you can access depends on your property’s ‘equity’– the difference between the size of your current loan and market value of your home. So, if you have a mortgage of £200,000 and the property is now worth £300,000 then the equity is £100,000. Typically, the higher your equity (or the lower your ‘loan to value’) the better the rate you can borrow at.
On the subject of rates, always be aware that the deal with the cheapest repayment rates might not be the best. Most lenders will charge a booking and arrangement fee, and you may find a low interest rate could come with higher fees.
To guide you through the process and to compare the long term costs, you should use an independent mortgage advisor like Charles Cameron and Associates. As we’re not tied to any particular lender, we’ll be able to give you impartial advice and offer you mortgages from a range of lenders.
While remortgages are mostly straightforward, buying a house requires a bit more work – and a lot more patience.
To begin with, you’ll need a deposit. If you’re already a homeowner, the profit from the sale from your current home (your equity) may provide it, but if not, you will have to save up until you’ve got enough: putting money into an ISA (a tax-exempt saving account) is a good way of doing this.
As with remortgaging, it makes sense to shop around and remember, you could also be subject to early redemption fees so you may need to factor that into your costs.
You may need to employ a surveyor to check your new property, and you will also have to pay a solicitor to oversee conveyancing. You may have to pay Stamp Duty Land Tax depending on the price of the home you’re buying.
At Charles Cameron and Associates, our experience will help you navigate any home purchase or remortgage to ensure you get the deal that works best for you.