What is re-mortgaging?

There are two types of re-mortgaging.  The first is simply transferring your mortgage from one company to another or moving it to a different type of mortgage with your current lender.  This is what you need to do when you come to the end of a fixed deal. If you don’t you will be put on your lender’s variable rate which is highly likely to be expensive. When you remortgage for this reason the balance of your mortgage remains the same. You are just transferring to a deal with different rates of interest.

The second type of re-mortgaging is when you need to borrow more money, so you take out a larger mortgage in order to pay off other debts or perhaps buy a car. We advise against this wherever possible.

This article deals with the first type of re-mortgaging, for those who are coming to the end of their fixed term period (where interest rates remain at the same rate for the first two years or more) and they are facing higher interest rates unless they change mortgage.

For different types of mortgage take a look in the text box to the left.

How can I change?

We’ve put together three simple steps to help you get the best deal for you:

• Start looking now

If you’re coming towards the end of your fixed-term period then start looking straight away. You can arrange a re-mortgage up to six months before the end of your fixed term period and because the good deals are snapped up so quickly at the moment, arranging it early is the best thing to do. If you find a better deal later on it’s fairly easy to cancel one that you’ve signed up to before the money has been transferred over.  So if you do find a good deal, grab it quick smart; you can always get out of it later on.

• Get a broker

The second thing that you should do is get yourself a good mortgage broker.  A good mortgage broker will look at the whole of the market for you (not just a few companies that they are tied to) and be able to get you the best deals that are on offer.  One of the best independent brokers in the UK – you can speak to them for free about your mortgage needs.

If your broker does find you a great offer, you should also consider going to have a chat with your current provider to see if they will match the offer.  They won’t always be able to, but if they do you can avoid the, often excessive, exit fees that are involved with changing your mortgage provider and you may get cheaper arrangement fees.

• Start budgeting

As soon as you start looking, you should also start to budget for your new mortgage.  Your new mortgage deal may be more expensive than your current payments, depending on what you are offered and so you should start budgeting increased mortgage payments into your monthly expenditure. However, as interest rates have come down enormously in recent months, you may have a better deal. In which case we suggest you continue paying the same amount as you did before (or even more if you can afford it) so that you can pay off your mortgage quicker and save yourself a TON of money in wasted interest payments!

How much will it cost?

The costs that you will have to fork out for straight away are the arrangement fees for the new mortgage and the exit penalities on your current mortgage.  These vary greatly across different banks and different mortgages, but can be between about £100-£3,000.  More recently, arrangement fees have become a tool to manipulate comparison tables.  By offering a lower rate of interest but high arrangement fees a mortgage provider can get up high on comparison tables. They then make the money back by hiking up arrangement fees.

This can work to your advantage: if your mortgage is over £200,000 you’ll probably save money by paying a higher arrangement fee and then lower interest. However under £200,000 it’s probably better to go for a slightly higher interest rate to save on arrangement fees.  

What if I can’t get something I can afford?

If you are facing real problems: either no one will offer you a new mortgage or the ones you are being offered are simply too expensive, then you have two choices. Either you will have to be resourceful and try to make more money out of your house in order to be able to afford it, or, if this is not possible, you should get help and advice to stave off repossession.

Ways to make money from your home

• You can try renting your driveway or a room in your house (the latter is tax-free income up to £4,225 a year).  Renting to a foreign student can be the best of both worlds because you get to make money from them but they tend not to stay long so you don’t have to put up with the same person for months and years.
• Alternatively, if things look really tough, you could move out of your house entirely for a year and rent the whole place out.  You would either have to find an accommodating friend or pay rent to live somewhere smaller and cheaper, but you could end up making enough money off the rental income to cover the cost of both your new residence and your mortgage.

If things are looking really bad…

If you really can’t afford it, you may have to sell your home, leaving you free to rent for a while whilst the market gets back on its feet.  This is not ideal but it is better than having the place taken off you. In this situation, do what you can to make the property look as attractive as possible and put it on the market at an attractive price. That way you will be able to get a quicker sale and deal with your mortgage problem earlier rather than later.

If the situation is even worse than that then go DIRECTLY to one of the charitable advice agencies below – particularly the Citizens Advice Bureau and Shelter.

Do’s and Don’ts

Don’t be tempted to use a sale and rent back company to sort this all out for you.  We have not found any of these deals to be good for the homeowner. They will often hugely undervalue your home and then, after a year or so, they could hike up your rent to make you leave.

Do get help quickly. If you are facing real debt problems and fear you may be repossessed, remember there are free services there to help you. Get in contact now with the CCCS (Consumer Credit Counselling Service), the Citizens Advice Bureau or National Debtline. Also the charity Shelter has a lot of experience in dealing with housing problems and is very helpful.