Wednesday, 8 July 2009

Remortgage your home to relieve debt problems

posted by debts.org at 04:14

If you want to cut your monthly repayments, or if you are struggling with debt problems or credit card debt problems, you could remortgage your home. A remortgage is the process of moving your mortgage from one lender to another who may offer better terms and conditions, which will help you with your repayments. You don´t necessarily need to have a debt problem to consider re-mortgaging your home.

The main reasons to consider re-mortgaging your property are:

• To reduce your monthly repayments by securing a cheaper mortgage

• To release some of the value built up in your property for other spending, such as home improvements or to alleviate debt problems

• To extend the term of your mortgage, which will mean cheaper monthly payments

• To reduce the mortgage term you could find a cheaper deal, keep the repayments the same, and pay off your mortgage in less time

Banks and building societies in the UK have tightened their criteria when it comes to mortgage lending and now deposits of 15-20% are typically demanded before they will consider a remortgage application. The higher your deposit, the more likely you are to find a cheaper interest rate. If your original mortgage was taken out with only a small deposit, your equity may not enable you to remortgage. In this instance, you may have to accept the lender´s standard variable rate (SVR). If you are able to switch your mortgage, important things to remember are:

If your original mortgage was taken out with a small or no deposit, you may find there is not enough (or any) equity for you to remortgage. This means you may have to put up with your lender's standard variable rate (SVR) until conditions improve. If you can switch, here's what you should do:

1. Re-mortgage paperwork

You should begin to think about remortgaging at least three months before your current deal finishes. Keep together your latest mortgage and bank statements for presentation to the prospective new lender. If your current deal is a tracker or variable rate deal, it could have reduced in the past few months, so check what you were paying before the reduction. This will help you to assess how much you can reasonably afford to pay when you re-mortgage. You can then compare your current mortgage repayments with the new re-mortgage offer.

2. How much will it cost me to re-mortgage?

Always check the small print of your current mortgage documents for details of early redemption charges (ERC). These charges can make re-mortgaging unviable. There may also be an exit fee which a lender may charge for closing your mortgage early. Contact your lender for a quote for paying off the mortgage plus any extra charges he may include. Any exit fee must correspond with the one in your mortgage agreement. If you have a fixed-rate deal, check whether any ERC are applicable.

3. Loan restrictions could cause more mortgage debt problems

Early redemption charges (ERC) do not necessarily finish when your fixed rate ends. You may need to pay the lender´s standard variable rate (SVR) for a set period after the initial deal ends. When interest rates are low, this can be advantageous to you, but as rates rise, being stuck on the same rate could prove more expensive for you in the future.

4. Find the best refinance mortgage for you

You need to take advice on the best refinance mortgage to suit your needs. You may want a fixed rate, a tracker or a variable rate mortgage. You could either speak to the lenders directly, or try a comparison website to find the re-mortgage you want. If you use a mortgage broker, some lenders will not offer the best deals, and charges can be higher. Brokers can however be particularly helpful if you only have a small deposit, are self-employed or have a bad credit record.

5. Work out the fees for a refinance mortgage

The best refinance mortgage deal for you may not come cheaply. You may be expected to pay legal fees, application/arrangement fees and a valuation fee. Fees can be added to the loan but bear in mind you will be paying interest on that amount for the remainder of the mortgage term. Some fee-free deals are available where lenders pay for or refund legal and valuation costs, but they can come with a higher interest rate. You need to weigh up all the pros and cons before agreeing to one of these re-mortgage deals to make sure you will be saving money in the long term. Beware of excessive charges and hidden extras such as high redemption penalties.

6. Ask your mortgage lender to match the new deal

Once you are aware of the terms and conditions of any new refinancing deal, go back to your current lender and see if he will match it or better it. You have nothing to lose, and you may be pleasantly surprised. If you decide to stay with your current lender you will save time and hassle.

7. Applying for a re-mortgage deal

Apply for the new mortgage deal before your existing special offer rate expires. You may want to approach several banks/building societies to see what they can offer you, giving you more chance to secure a deal that suits your requirements. You will need to complete an application form, provide proof of income and proof of identity. Different lenders may require additional documents.

8. Wait for re-mortgage information from your lender

Based on the details you submit to the new lender, they should send you an agreement in principle before arranging a survey of your home, to make sure they are happy to accept it as security against your loan. Once the survey has been undertaken and all fees paid, the new lender will send you a mortgage offer and he will deal directly with your current provider. Once the deal is complete, you should receive a completion statement. The process of refinancing your home should take no longer than a month, unless you are borrowing extra finance, then it could be longer.

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