Thinking about swapping your current mortgage for a cheaper one? You don’t need a finance degree to get a good deal. In the next few minutes you’ll learn the key numbers lenders look at, a quick checklist to follow, and the mistakes that cost homeowners thousands.
First thing – work out how much of your home you actually own. Subtract what you still owe from the market value of the property. That difference is your equity. Most lenders want you to keep the loan‑to‑value (LTV) at 75‑80 % or lower. If your house is worth £250,000 and you owe £150,000, your equity is £100,000 and your LTV is 60 % (150,000 ÷ 250,000). That’s a sweet spot for getting lower rates.
If the LTV creeps above 80 %, you may need to bring extra cash to the table or look for a specialist lender. Use an online calculator or a quick spreadsheet: property value ÷ loan amount = LTV %. The lower the LTV, the more bargaining power you have.
1. Gather your paperwork. Pull your latest mortgage statement, recent payslips, and a recent property valuation (or a comparable sale price). Having these ready speeds up the application.
2. Shop around. Don’t settle for the first offer. Check at least three lenders – a big high‑street bank, a challenger mortgage provider, and a building society. Compare not just the interest rate but also arrangement fees, early‑repayment penalties and any cashback offers.
3. Calculate the true cost. Multiply the new rate by the loan amount, add any fees, then subtract what you’d pay on your current mortgage. A lower rate can be offset by high arrangement fees, so look at the total over the next 2‑3 years.
4. Consider the timing. Rates fluctuate, but you can lock in a deal for up to 30 days. If you’re close to the end of a fixed term, try to start the process at least two months before the switch‑over date to avoid early‑repayment charges.
5. Get professional advice. A mortgage broker can run the numbers for free and may have access to deals that aren’t advertised. Their fee is usually a small percentage of the loan, but the savings can be much bigger.
Once you’ve picked a deal, the lender will request a valuation. If the valuation comes back lower than your estimate, you might need to adjust the loan amount or add a bit of cash to keep the LTV in range.
After the paperwork is signed, the old mortgage is paid off and the new one starts. Keep an eye on your monthly payment – a lower rate should mean a lower bill, but remember to factor in any new fees that are rolled into the loan.
Remortgaging doesn’t have to be stressful. By knowing your equity, keeping the LTV low, and following a simple checklist, you can shave hundreds or even thousands off your mortgage costs. Start gathering your numbers today and see how much you could save.
Remortgaging can be a powerful financial tool, offering the potential for lower interest rates, improved loan terms, or the opportunity to release equity from your property. However, it is essential to proceed with caution, as there are numerous pitfalls that can catch homeowners off guard. This article delves into the potential risks associated with remortgaging, provides insightful tips on how to negotiate better deals, and explains when it might be advantageous or disadvantageous to make this financial move.