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Re-Mortgage : eBook

Introduction:

Dear Re - Mortgage Customer ,

At Mill - House Mortgage Solutions we are impartial & give advice from the whole of market .

We aim to provide you with all the information you need to answer your questions , as well as make an informed decision .

The following information is designed to build on what you already know & help you decide whether a Re - Mortgage is suitable for you in meeting your needs .

Many people merely re - mortgage from one lender to another at the end of their deal period , this is referred to in the industry as churning . Whilst churning does usually mean you get to take advantage of leading rates within the market , it does incur costs & fees which could actually make Re - Mortgaging a more costly experience than staying with your existing mortgage lender . Hence , we will also look at the fee's involved & true cost of Re - Mortgaging to help you make the right decision .

Choosing the right Re - Mortgage is not an easy decision to make . As there are hundreds of deals available tailored to many different needs & requirements . However these are the decisions many clients with existing arrangements are making each & every day .

Can You Afford to Re - Mortgage ?:

The First & most important question anybody considering a Re - Mortgage must ask themselves is Can You Actually Afford to Re - Mortgage ?

Some of the most crucial elements , which will effect your borrowing ability , are as follows ...

• The Amount of Equity you have in the property

Although many lenders offer Re - Mortgages up to 100 % of the property value , most incur additional charges or increased interest rates .

However as existing mortgage clients , the chances are you've built up equity within the property . This happens as you repay your mortgage debt over time & as you accrue Capital Appreciation on your asset .

Many Re - Mortgage lenders offer reduced interest rates on low Loan - to - value applications ( typically 75 %), where the client retains a relatively large section of equity within the property .

A substantial deposit can do more than just secure you a better deal though , as most lenders will reduce the amount of money they are willing to lend on high loan to value applications .

However if you do need to borrow using a 100 % mortgage , do not despair ... there are still many lenders who offer what you need .

• Your Income

Your income will form the basis of the Mortgage lenders decision as to whether to lend you the money you want . Most calculate how much to lend you based on a multiple of your income . However more & more are switching to affordability based assessments which can be more suited to individual requirements . In most instances proof of income will be required .

If you are not able to provide proof of income , it does not necessarily mean you cannot have a mortgage . Instead you may have to consider Self - Certification of your income . In short this means the Mortgage Company trusts the information you give them & do not ask for any additional proof . Understandably though this results in a higher risk for the mortgage lender & usually results in higher interest rates .

• Your Financial Commitments

All Mortgage Lenders will asses your existing financial commitments to ensure you can afford the mortgage you are applying for . Many have specific guidelines surrounding areas of poor financial conduct ( as detailed below ). Just because the Re - Mortgage you're applying for is cheaper than you have , this does not necessarily mean the new lender will view the new loan as affordable .

• Your Financial Background

As mentioned above your previous financial conduct will be taken into consideration by the Re - Mortgage lender when the asses your application .

All Mortgage lenders have specific guidelines on how to view your financial background . They also each consider negative financial data in various different ways .

If you have obtained previous credit , however failed to maintain this & run into difficulty , each company will take a different view on your circumstances depending on their internal policies .

If you have a poor credit history , CCJ's , missed payments , missed mortgage payments , defaults , it need not mean you cannot find the Re - Mortgage to suit you .

We recommend that if you have fears concerning your credit file , you should obtain a copy of your own report ( for around 5 . 00 ) prior to making an application for a Re - Mortgage .

Remember : Many of the Mortgage Lenders Mill - House Mortgage Solutions deal with offer mortgages to people in such circumstances , please contact us to discuss your situation .

The Reasons to Re - Mortgage :

There are 4 main reasons why people Re - Mortgage their existing debt ...

To obtain a better Interest rate & thus reduce monthly payments

Consolidating to reduce monthly payments

To borrow more money

To repay the mortgage more quickly

We will look at each of these area's to help you understand them better .

• To Obtain a Better Interest Rate :

If you are currently paying the standard variable rate ( SVR ) of interest offered by your lender , it is probable you are paying more than you need to . By simply switching to a new mortgage provider it's possible to secure a significantly reduced rate of interest . Naturally reducing the monthly payment you have to make .

• Consolidating to Reduce Monthly Payments :

Generally speaking the interest rates on Mortgage lending are lower than that of Unsecured loans & Credit Cards .

Hence , if you have large credit card balances or other loan commitments you may be able to consolidate these when you Re - Mortgage . This can result in large monthly savings in monthly outgoings .

Choosing a Re - Mortgage with in built flexibility can be a great way of doing this , as you can still pay off the loans over the same period , but possibly at a lower interest rate than you would have been paying .

• To Borrow more money :

Whilst nearly all lenders will consider granting you a further advance on your existing debt . In many instances you will not be leant this money on market leading rates . Thus , raising the additional funds via Re - Mortgaging to another lender is often the most financially viable solution .

This additional money could be for improving your home , purchasing a second property , going on holiday , or any other reason .

By Re - Mortgaging to raise additional funds you not only get to borrow the money on a new rate , you also get an opportunity to review all your circumstances and select a mortgage suited to you current personal arrangements , which in themselves may differ vastly from when you took out the original mortgage .

• To Repay the Mortgage more quickly :

By reducing the interest rate on which your mortgage is based , you can use the savings you make to pay off your mortgage faster without any notable difference to your personal finances .

Even relatively small savings could make a big difference when you consider most mortgages result in paying back almost double what you borrow . Meaning every 1 you pay off could save you almost the same amount in interest !

Remember : Whatever the reason for Re - Mortgaging you always need to consider the true cost involved . Making an informed decision means much more than getting what you want at a good rate .

Types of Mortgage Available & Related Costs :

There are various types of mortgages available :

• Fixed

Here the interest rate charged is fixed for a set period ( i . e . 2 yrs ) before reverting to the lenders standard variable rate . Usually there is an Early Repayment charge if you redeem the Mortgage before that period ends . Typically you will be charged a non - refundable booking or arrangement fee to secure a Fixed mortgage rate .

Benefits : As payments fixed for 2 years a Fixed rate provides security and enables people to budget effectively . They remain unaffected by rises / falls in interest rates .

Drawbacks : As usually tied into deal , unable to take advantage of interest rate reductions . If its necessary to make an unplanned redemption of your mortgage , in the deal period , a large fee is usually payable . Also , If interests rates have risen , there can be a dramatic increase in rate when coming out of a Fixed tie in period .

• Tracker's

Here the interest rate youre charged tracks another interest rate . Usually either the lenders own Standard Variable Rate or the Bank of England base rate . As the rate fluctuates , movements in interest rates usually result in a knock on movement to your mortgage payment . Arrangement or Booking fees on these mortgages are usually refundable , or dont even get charged , if the mortgage doesnt proceed . Many trackers are available without a tie in period , as they do not have a deal period to speak of .

Benefits : Allows the customer to benefit from reductions in interest rates causing a reduction in their mortgage payment . If you want a short - term deal for your mortgage , a tracker can provide a temporary solution until your circumstances change . If you can comfortably afford fluctuations in payments , these mortgages mean you do not have to change your mortgage regularly to secure a new deal .

Drawbacks : Rises in interest rates result in higher mortgage payments . Uncertainty over the future interest rates makes budgeting effectively difficult .

• Discounted

Here the interest rate youre charged tracks another interest rate during the deal period , similar to a tracker mortgage . However this rate is discounted for an initial deal period , making it more attractive to customers by reducing the initial monthly cost . Once the deal period has ended the rate payable reverts to the lenders standard variable rate . As the rate fluctuates , movements in interest rates usually result in a knock on movement to your mortgage payment . Usually there is an Early Repayment charge if you redeem the Mortgage before that period ends . Arrangement or Booking fees on these mortgages are usually refundable , or dont even get charged , if the mortgage doesnt proceed .

Benefits : Allows the customer to benefit from reductions in interest rates causing a reduction in their mortgage payment . Attractiveness of initial rate usually in comparison to available Fixed rates .

Drawbacks : Rises in interest rates result in higher mortgage payments . Uncertainty over the future interest rates makes budgeting effectively difficult . If its necessary to make an unplanned redemption of your mortgage , in the deal period , a large fee is usually payable . There can be a dramatic increase in rate when coming out of a discounted mortgage tie in period .

• Stepped

Here the deal period is set over a timescale ( i . e . 5yrs ) however the rate charged changes each year . The rates charged are usually set at the start of the deal . Once the deal period has ended the rate payable reverts to the lenders standard variable rate .

EG

Year 1 Year 2 Year 3 Year4 Year5

1 % 2 % 3 % 4 % 5 %

These rates can be stepped up or down & are designed to accommodate people who expect changes in their circumstances in the forthcoming years .

For example , if you are a young professional and expect your income to grow steadily you may wish to pay as little as possible now , on the basis youll pay more towards the end of your deal period .

As with Fixed mortgage deals usually there is an Early Repayment charge if you redeem the Mortgage before that period ends . Typically you will be charged a non - refundable booking or arrangement fee to secure a Stepped mortgage rate .

Benefits : Depending on your circumstances , these mortgages can be perfect to support your forthcoming life changes .

Drawbacks : If forthcoming changes in your life do not go exactly as planned , incremental increases each year could seriously effect your ability to pay your mortgage . As usually tied into deal , unable to take advantage of interest rate reductions . If its necessary to make an unplanned redemption of your mortgage , in the deal period , a large fee is usually payable . Also , If interests rates have risen , there can be a dramatic increase in rate when coming out of a reducing Stepped mortgage tie in period .

• Capped

Here the interest rate youre charged tracks another interest rate during the deal period , similar to a tracker mortgage . However this rate gets capped at a set level at which point it will not rise any higher , irrespective of market changes . This level is determined prior to commencement of the mortgage . After the deal period has ended the interest rate payable will revert to the lenders standard variable rate . As with Fixed mortgage deals usually there is an Early Repayment charge if you redeem the Mortgage before that period ends . Typically you will be charged a non - refundable booking or arrangement fee to secure a Capped mortgage rate .

Benefits : In many ways there are a mixture of a fixed and tracker mortgage . You capitalise on interest reductions , however can effectively budget on the set capped interest level .

Drawbacks : Due to low demand for these types of mortgages , there are fewer options available . Cap on interest rate is usually set higher than available Fixed rates . If its necessary to make an unplanned redemption of your mortgage , in the deal period , a large fee is usually payable . Also , If interests rates have risen , there can be a dramatic increase in rate when coming out of a Capped mortgage tie in period .

• Current Account and Offset

Right , heres the tricky one to explain !!!

Current Account and Offset mortgages work in conjunction with your bank account .

With a Current Account mortgage , your mortgage IS your bank account . Your balance shows accordingly ( i . e . 195 , 000 ), your salary can be paid in & all transactions are dealt with as they would be on a normal account . In most instances you can have a check book & debit card !

As you are charged interest daily on the account ( as with most mortgages nowadays ) any money surplus to your advised payment , at any given time , results in less interest being charged . This way the higher the amount & longer you leave money in your account , the less interest you pay .

With an Offset mortgage , your bank account and any other accounts you have ( savings etc .) are Offset against your mortgage . This means before they work out how much interest to charge you on your mortgage they take the balance of your other accounts off your mortgage balance . Creating a similar result as to Current Account mortgages above . The more you have in your accounts the less interest you pay . Its important to note you usually stop receiving interest on your current accounts .

The key difference between the two is a Current Account mortgage is ONE account . An Offset mortgage remains several independent accounts . Although a Current Account mortgage is a slightly more effective way of overpaying , some prefer not to have direct access to large amounts of money and or have no desire for a continual reminder of their mortgage balance !!!

Usually Current Account mortgages & Offset mortgages do not have tie in periods . They therefore do not have early repayment charges . Many will have varying arrangement fees , some refundable some not .

Benefits : People with large amounts of money in savings or investments can use this money to save interest on their mortgage . Either option can help you pay off your mortgage early . Some can be used by sole traders and simple partnerships to offset business accounts .

Drawbacks : Usually this style of mortgage has high interest rates , meaning you need to take advantage of the features of these mortgages to make them worthwhile .

+ Many more !!!

Its important to remember not all deal periods will run in line with the tie in period , within which you must pay an early repayment charge .

Each option provides a different level of security as to the cost of your mortgage repayments .

To discuss which type of mortgage would best suit your needs , please contact Mill - House Mortgage Solutions & well be more than happy to discuss this with you !

However whichever option you choose , each of them entail many of the same associated costs :

• Booking Fee / Arrangement Fee

An Arrangement fee will be charged by most Re - Mortgage lenders to cover the administration costs of setting up the mortgage account . A Booking fee will be charged to reserve a special deal rate ( typically on fixed rate mortgages ).

Some lenders do offer Arrangement fee FREE Re - Mortgage products .

• Higher Lending Charge ( HLC )

A Higher Lending Charge will be made by most Mortgage lenders on high Loan to Value applications ( typically over 90 %) to cover the additional risk of losing money in the event of reclaiming the property . This fee has taken the place of the MIG premium previously charged by many lenders , which became unpopular due to negative press coverage in the late 1990's .

Most Re - mortgages fall well below this Loan to value threshold , however for those Re - Mortgaging in line with Capital Raising or a House Move it's always best to check if HLC is applicable .

• Early Repayment Charge

An Early Repayment Charge will be made by most Mortgage lenders on capital repayments within an initial deal period ( typically the same term as the discounted or fixed rate deal ). The charge is normally made as a percentage of the figure being repaid .

Again , some Re - Mortgage lenders will offer Early Repayment Charge fee FREE products .

• Valuation Fee's

Many Mortgage lenders will insist on the use of their own approved valuers . Some however will allow the use of your own private valuation . Typically however a charge will still be made to re - type this valuation for the purposes of the relevant Mortgage lender . In either case it's best to check with the relevant Mortgage Lender on their accepted valuation procedures .

Many lenders nowadays offer FREE VALUATIONS , to encourage clients to Re - Mortgage to them . Again , these are normally carried out by the lenders own approved valuers . Usually however when the mortgage lender is funding the valuation they are reluctant to provide the client with a copy . This is to avoid waste of time applications purely to obtain a free property valuation .

• CHAPS / Funds Release Fee

The CHAPS / Funds release fee is made by most Mortgage lenders to cover the related costs of transferring the funds to your solicitors upon completion of the mortgage application .

• Sealing Fee / Closure of Account Fee

Mortgage lenders charge a Sealing Fee / Closure of Account fee to cover the administration costs of closing the account when you redeem the mortgage .

Since recent pressure from the FSA ( Financial Services Authority ) many mortgage lenders have ceased charging a Sealing / Closure of account fees . However some continue to charge them and others have simply re - classified the fee as an administration charge .

• Legal Fee's

Unlike the deals available for First Time Buyers , most Re - Mortgage lenders will offer to pay the associated legal fee's when a client chooses to switch to one of their products . This is partly to encourage more business & partly to make the switch itself more financially viable for the client . However please note NOT ALL Re - Mortgage lenders offer this .

It's important to remember all the above costs will be in addition to your own equity being transferred to the new property .

Remember : Many of the Mortgage Lenders Mill - House Mortgage Solutions deal with offer deals with FEE's FREE options , which our advisers would be happy to go through with you .

True Cost Analysis :

As mentioned earlier one of the main influencing factors when considering whether to Re - Mortgage or not is the True Cost .

The true cost of any Mortgage is the total figure you will repay over a given period ( Typically the deal period or the Term of the mortgage ). True cost analysis is a comparison between the total's paid on both the new deals available & your existing Mortgage .

Ways of Repaying your Mortgage :

In Addition to choosing the right type of Re - Mortgage , you need to consider the most appropriate form of Repayment .

There are three options available ...

Interest Only ( IO ), Capital & Interest ( C & I ) & Mixed ( MIX ).

• Capital & Interest ( C & I ) or Repayment Method :

With the repayment Method you pay off the capital as part of your regular monthly payment . Your monthly payment will contain an element of repayment of your capital in each payment alongside the interest due . The proportion of each will change through the term of the mortgage .

Repayment mortgages have certain advantages ; the debt will reduce with each monthly payment you make , albeit that you will be paying mostly interest in the early years , with the capital repayments making up only a small part of the total monthly premium .

As the debt reduces , the amount of capital repaid increases ; this would normally reduce the debt against the property .

Continuing to make all payments when due guarantees the mortgage will be repaid in full at the end of the term . When repayment is selected many lenders will be more flexible about rearranging payments and altering terms as and when this is necessary .

• Interest Only ( IO ) Method :

With the interest only method , only interest is payable over the term and the capital is intended to be repaid at the end of mortgage by an appropriate repayment vehicle such as ISAs , PEPs , pensions , unit trusts or endowment policies . People have been known to utilise more than one of such repayment methods to repay the debt at the end of the term .

Interest Only mortgages were most popular in the late 1980's when most commonly sold alongside an endowment policy designed to repay the debt & make a modest profit . However in recent years the shortfalls experienced on many endowment policies had led many to opt for the additional security of the C & I or repayment method .

• Mixed Repayment ( MIX ) Method :

With the mixed repayment method , the applicant selects a proportion of the debt on which to pay C & I and a proportion of the debt on which to pay interest only . The applicant would also need to put provisions is place to repay the interest only section as outlined above .

They each have their advantages & disadvantages .

The main advantage of C & I as a repayment method is that this method provides the security of repayment over a given period .

Interest Only may not be able to provide the same security , however it does enable the customer to utilise the investment potential of the accompanying repayment vehicles .

Using a mixture of each method ( MIX ) enables the applicant to have some security of repayment with an added investment potential normally only enjoyed by those who opt to go Interest Only .

When Re - Mortgaging it's important to consider your current choice of Repayment method .

If your currently paying interest only you need to ensure you have a large enough repayment vehicle to cover the new debt .

If currently paying C & I you need to keep the mortgage term in line to ensure you don't fall behind your repayment plan .

Which is Best for You ?:

Call NOW on 0845 508 3252 to receive FREE ADVICE on which type of Mortgage & Repayment method suits your needs best.

Our opening hours are 9 : 30AM - 7 : 30PM Monday - Friday & 9 : 30AM - 1 : 30PM on Saturdays .

Please either ;

call us on : 0845 508 3252 (calls from UK landlines charged at local rates, mobile phone rates vary by cellular service provider)

or

e - mail us at :info@millhousesolutions.co.uk

or

fax us on : 0845 508 3253

or

Write to us at : 9 Leopard Court Norwich NR3 1NN

We aim to respond to all our enquiries within 24 hours of receipt . Within 1 hour wherever possible .

To speak to one of our Advisers about your own Mortgage OR anything in conjunction with it

• Telephone: 08455 08 32 52
• Email: info@millhousesolutions.co.uk
• We will contact you if you complete our Arranging Contact Form

We can then discuss these or any other points you wish to query.

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