According to data released by UK Finance in July, people are now remortgaging more than ever, with more than 46,900 UK homeowners taking the step that month. The data showed that the number of people remortgaging has been increasing at a rate of 26.1% every year since 2009.
For a lot of people, getting a mortgage is a huge financial commitment, and many are scared to take the step. This is not helped by the many myths and misconceptions that run rampant in the industry. To help you make a decision based on facts, we have set out to debunk some of the more common remortgaging myths.
Myth 1: Remortgaging is a last resort and should only be done when you are out of borrowing options.
Fact: This assumption is far from the truth. People don’t only remortgage their homes to raise money or release equity, or when they have hit rock bottom in their finances. Remortgaging is actually a good way to get a better deal on your mortgage. When you remortgage, you can move from an unfavourable option to a more secure fixed rate or a more flexible mortgage plan. Maybe you were dealt a bad hand because you had a poor credit score or were self employed at the time of your first mortgage, remortgaging can fix this.
Myth 2: Remortgaging is a way to get into more debt.
Fact: A lot of people are afraid to remortgage because they think they will only be putting themselves in more debt. Remember that from the point above, remortgaging is one way to get a better deal on your existing mortgage. This means a lower interest rate, lower monthly repayments and smaller fees; in other words, you are saving rather than losing.
That being said, while it is true that you can remortgage to raise credit, mortgage interest rates are usually lower than credit card rates, therefore remortgaging could be a way to consolidate your debts. Although you may end up paying more when you add these debts to your mortgage (which seems like you are increasing your debts), you will be paying a single interest rate rather than different rates on multiple debts and you will have the breathing space to spread your repayments over an extended period.
Myth 3: Remortgaging is a complex process.
Fact: No myth is further from the truth. Even for home owners who are unfamiliar with the remortgaging process, it is not as complicated as people make it out to be. Granted that you may be fishing in unfamiliar waters, but a good mortgage advisor will be able to walk you through the entire process. The key is to start earlier and shop around so that you get a better deal than you are on already. If your current lender is offering any new deals, remortgaging with them will be easier and cheaper. However, it is always advisable to have a benchmark that you can use to make comparisons.
When remortgaging, don’t just focus on the interest rate, check to see what other fees apply and then weigh the cost of moving to be sure that it doesn’t cancel out what you will be saving. And, like every other mortgage process, your application will be considered based on factors such as your credit score and an affordability assessment.
Myth 4: I won’t see any changes or savings.
Fact: This is also untrue. Lenders use a low initial rate to attract new customers, but these rates don’t last forever, at best they will last for five years after which you will be moved to the lender’s standard variable rate. A study by banking group HSBC found out that about 3 million UK homeowners stuck on a standard variable rate will end up paying more than £4,000 a year extra compared to when they move over to a new fixed rate mortgage. It is clear from this that remortgaging at the expiration of your initial rate will save you money.
Myth 5: You cannot remortgage with bad credit.
Fact: While the best deals possible will not be available to you, it is definitely possible to remortgage with bad credit. However, in this situation, lenders will likely charge you a higher interest rate to make up for the risk. That being said, there are lots of things you can do to improve your credit rating. You should also consider talking with a mortgage advisor to see if you can get a good deal despite your poor credit.