MORTGAGES
Learn more about mortgages. One of the biggest assets you'll ever have is your house.
There are some of us who purchase houses without the need to borrow money, however, for the rest of us the most common way of purchasing a house is through a mortgage.
Remortgaging involves taking out a new mortgage and repaying your existing one. With a remortgage, you do not usually move property.
While most homeowners have a mortgage, many don’t realise that they could save money by remortgaging. While there are good reasons to find a new mortgage deal, it really depends on your situation and circumstances. Not sure whether to remortgage? Remortgaging involves taking out a new mortgage and repaying your existing one. With a remortgage, you do not usually move property. You simply transfer the debt on your existing mortgage to a new lender, with your home continuing to act as security. This could be with either your existing lender or a new mortgage provider.
When should you remortgage?
1. At the end of your current deal
When you bought your home, it’s likely that you chose a mortgage with an introductory incentive. For example, you might have selected a fixed-rate mortgage for three years, or a tracker mortgage for two years. Whatever the case, at the end of that incentive period your mortgage will switch to your lender’s standard variable rate (SVR). The SVR can go up and down as your lender decides, which can result in a sudden increase in your monthly repayments. Luckily, it’s usually easier to get out of your mortgage early once you’ve reached the end of the incentive period. So, you can start to shop around for other deals.
2. If your home has increased in value
If your house has substantially increased in value – whether that’s because you’ve carried out renovations, or new transport links have driven up prices locally – your loan-to-value ratio will have changed. For example, a £180,0000 mortgage on a £200,000 property has a LTV of 90%. If the property value quickly increases to £225,000, the LTV is now 80%. This gives you access to different mortgage deals, so remortgaging can result in lower monthly repayments.
3. When you want to borrow more
Depending on your financial situation, it can sometimes make sense to increase your mortgage so that you can pay off other debt, such as expensive credit card debt. You might also want to borrow more for another reason, such as to carry out home improvements. If your current mortgage provider won’t allow you to increase your mortgage, remortgaging would give you the opportunity to switch to one that will.
4. When you want to overpay
The full term of a mortgage can be several decades so that it’s likely that your financial circumstances will change several times in that period. When you’re better of (e.g. when you receive a pay increase), you might want to overpay your mortgage. Overpaying your mortgage can help you to reduce your debt more quickly and potentially save you a lot of money over the years in interest. But not all mortgage providers allow it. If yours doesn’t, you might want to remortgage with a different lender.
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Applying for a mortgage can be intimidating, and it sometimes feels like the lender has all the power.
Mortgage Options
APPLYING FOR A MORTGAGE
Can be intimidating, and it sometimes feels like the lender has all the power. Every lender has its own method to decide whether it wants to lend to you. If you ft a lender’s criteria, you’ll most probably be accepted quickly. If you’re far from ideal, you’ll most likely be rejected by it. Choosing the right mortgage is a complex problem, but it’s vital for your financial health that you make a sensible decision and don’t get overwhelmed by the options, especially if you’re a frst-time buyer. To help you feel as confident as possible, we’ve put together the main different types of mortgages, so you know exactly what you’re looking for.
Repayment or Interest-only Mortgages
All mortgages are either repayment mortgages or interest-only. Repayment mortgages, sometimes called capital mortgages, allow you to borrow enough to buy a property (minus your deposit) and then repay that total amount, with interest, over time. Interest-only mortgages allow you to borrow enough to buy a property (minus your deposit) and then pay only interest on that amount until the end of the mortgage period. You will then repay the original amount, often by selling the property. Buyers who plan to live in their property almost always choose a repayment mortgage. Not all lenders offer interest-only and those that do will have strict criteria such as a decent deposit and an approved repayment vehicle in place to pay of the capital at the end of the term. Many landlords pay their mortgages on an interest-only basis and lenders generally accept this
Fixed-Rate or Variable Mortgages
Most repayment mortgages are either fixed rate or variable. Fixed-rate mortgages have set monthly payments that won’t change for an agreed period – usually between two and five years, but sometimes longer. While the interest rate is usually higher than for variable mortgages, you have the security of knowing it won’t rise. This can save you money over the long term. For example, if the Bank of England interest rates rise during your fixed mortgage period, you’ll be glad your mortgage payments aren’t affected. If Bank of England interest rates fall, you’d probably rather that your mortgage payments fell too – but that’s the price of security. Variable mortgages have monthly payments that go up and down. They might follow the Bank of England interest rates, or they might not. This depends on which type of variable mortgage you choose, out of the following options.
Tracker, Standard Variable Rate and Discounted Variable Rate Mortgages
Variable mortgages can be any of these types, and the difference between them is how the interest rate (and therefore the cost of your monthly repayments) is calculated. Tracker mortgages have monthly repayments at an interest rate that’s set a little higher than the Bank of England base rate. When that base rate goes up or down, so will the monthly repayments. Standard variable rate (or SVR) mortgages have monthly repayments at an interest rate set by the lender. Your payments can go up and down as they decide. Discounted variable rate mortgages have monthly repayments that are lower than the SVR. This discount usually lasts for an agreed amount of time, and when your time’s up, you’ll switch to the standard variable rate.
Capped Mortgages
Any of the types of variable mortgages can be capped, meaning that your monthly payments will never rise over a certain amount. That gives you some protection – although the cap is often quite high anyway, so think carefully before signing up.
Other Mortgages
While the above categories are the main different types of mortgage, you might want to consider some of the other special features that are available.
These can include :
Cashback mortgages, where you’ll receive a lump sum when you take out the mortgage (but usually pay a higher interest rate on repayments).
Offset mortgages, where your cash savings can reduce the interest you pay on your repayments.
Current account mortgages, where your current account and your mortgage are linked, which can also reduce the interest you pay.
Whether you are buying a new property or just remortgaging, it’s worth looking at the different types of mortgages available to you.
Useful Links
Stamp Duty Land Tax Holiday (Gov)
The temporary increase to the nil rate band for Stamp Duty Land Tax (SDLT), which is the rate before you start paying SDLT on residential property has been extended.
Rather than ending on 31 March 2021, the temporary nil rate band of £500,000 will be in place until 30 June 2021. Then from 1 July 2021 to 30 September 2021 the nil rate band will be £250,000. The nil rate band will return to the standard amount of £125,000 on 1 October 2021.
Help To Buy Schemes (Gov)
The government has created the Help to Buy schemes including Help to Buy: Shared Ownership and Help to Buy: Equity Loan to help hard-working people like you take steps to buy your own home.
50+ House Buying Tips (Martin Lewis)
It's the biggest purchase of your life, and small mistakes can cost large. So we've drawn up a house-buying battle plan, with over 50 top tips and tricks, from how to squeeze sellers for info to finding solicitors/surveyors.
How to Buy a House (Which)
Our step-by-step guide to buying a home explains everything you need to know, from saving for a mortgage deposit to making an offer and moving in