When you come to the end of a mortgage deal it is common practice to remortgage. It gives you the opportunity to shop around and look for a different, and hopefully better mortgage deal than the one which you had been on.
There are some short term gains in that you might find a deal which offers a lower rate of interest, which will lower your monthly outgoings. When remortgaging you will have the chance to choose between fixed and variable rates of repayment which may give you more security because of the amount you pay and the term for which this will be done. Remortgage deals are usually over two, three or five year periods. It is always important to read through the terms and conditions and assess exactly what you are buying into before you sign up.
There are many factors to consider when remortgaging, but the most important defining factor is the rate of interest. If interest rates go up then your payments will rise. If they are stable then your payments will not change. With this in mind, you can decide which type of mortgage is best.
Variable rate/Fixed rate
A variable rate mortgage will change when the Bank of England interest rates change. A fixed rate should hold its value despite changes in interest rates. Currently the best remortgage rates are on the variable packages, known as trackers, but if the rate of interest goes up then these deals will become less attractive.
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It is worth noting that many fixed rate mortgages have clauses which allow them to change if the interest rates do, and you should check this out before you commit to one.
Maximum Loan To Value
Another consideration to factor is the MLTV (Maximum Loan To Value) which will vary greatly and has an effect on the rates that you get charged. The higher the ratio here the steeper your rates of repayment will tend to be. Many lenders will advertise the lending rates based on a 75% loan, but this may vary down to 60%. The basic rule of thumb is the lower the ratio, the better your rate will be, and there may be some room for negotiation on this point depending on your circumstances and ability to repay.
There is also the mortgage fee to consider and this is a one off charge which may vary from nothing at all to as much as £2000. The fee will normally have an impact on the repayment rate and it is always worth working it out as a percentage of the overall repayment.
The current predictions are that interest rates will remain at their historic low point for the next two years. If this is the case, then the best deals around are to be found with tracker mortgages that are offering rates as low as 2.69%. For home owners with more than one property the market is more difficult with far fewer deals on offer. It is anticipated that the rates for larger mortgages will increase more steeply over the next few years. At the moment the best deals for owners of more than one property are also to be found in the tracker categories.
It is essential to review all elements when considering any remortgage deal, including the length of time and the monthly repayments. Make sure you anticipate any potential changes into your personal budget and it is always worth shopping around.