Mortgage expert reveals five common mistakes homeowners make when remortgaging

If your current mortgage offer is coming to an end, you may be thinking about switching to ensure you continue to get the best deal.

With mortgages being one of the largest financial commitments many people will face in their lifetime, it is important to watch out for potential pitfalls that could increase your monthly repayments.

David Hollingworth, Associate Director of Communications at fee free mortgage broker L&C Mortgages has shared five mistakes commonly made by those looking to remortgage, and how you can avoid them for yourself. 

Waiting until your current deal ends before remortgaging 

Whether you have taken out a fixed-rate, tracker or discount mortgage, your lender is likely to automatically switch you to their standard variable-rate (SVR) at the end of your introductory deal, which for most people tends to be two to five years.

Mortgage lenders set their own SVR, which isn’t directly pegged to the Bank of England base rates and tends to be much higher than rates you might find on fixed-rate, tracker or discount mortgages. The interest you pay with an SVR can often be double what you might have previously been paying for your fixed-rate repayments.

It is best to start thinking about new mortgage deals around 6 months before your current rate is about to end, to allow time to line up a new deal and prevent being moved onto your lender’s SVR. If you are staying with your current lender, is can take around a month for them to process your application, but if you are switching lender this could take around three months, so it’s best not to leave this until the last minute. 

Not asking how your broker is getting paid 

Using a mortgage broker to help you should make it much easier to find the best deal, but you should always ask them how they are getting paid.

Brokers will receive a commission called a ‘procuration fee’ of typically around 0.35% of the mortgage amount, which comes directly from the mortgage lender, rather than your own pocket. A broker should always be trying to find you the best deal, but it is important to have a look around at what deals are available beforehand.

Many brokers will also charge you a fee of around 0.3 – 1% of the value of the loan, in addition to receiving the procuration fee. If so, it may be worth asking why this is the case or consider finding a different broker who doesn’t charge a fee for their service. 

Remaining loyal to your existing lender 

For many people it can be tempting to stick with their current lender, especially if they have been with them for years and they trust them.

However, sticking with your existing lender and moving to a cheaper product on offer at the end of your current deal, could result in you paying hundreds or thousands more, in the long run.

Even if you aren’t using a broker, it is important to shop around to ensure that you are finding the best deal, instead of just switching to the one that is most convenient.

Switching to a different lender can also be beneficial if you believe your home has significantly increased in value since you took out your original mortgage. If your home is worth more than before, this can lower your Loan To Value (LTV), which is the ratio of the outstanding mortgage compared to your home’s current market value. A lower percentage LTV can result in lenders offering you lower rates of interest on your monthly repayments when it comes to remortgaging. 

Applying for credit before remortgaging 

Having credit and repaying it on time is a great way to build a healthy credit score and can help get you on the property ladder as a first-time buyer or open up lower rates if you are looking to remortgage.

However, be wary of taking out multiple lines of credit in the months prior to remortgaging, as this can lower your credit score and ultimately limit your ability to access lower mortgage rates.

If you are frequently applying for credit within a short period of time, mortgage lenders may assume you are overly reliant on credit and could deem you to be higher risk, even if you are only applying for a small amount of credit each time.

Every application you make records a ‘hard search’ on your credit report, which is visible to mortgage lenders when they assess your ability to pay back your loan. Lenders are likely to offer you higher rates of interest if they feel you are less likely to be able to pay back your mortgage. Therefore, it’s a good idea to space out credit applications, to no more than one every three months, and to not take out a credit card right before remortgaging. 

Not accounting for all the fees 

While it might be enticing to chase the cheapest rates, it’s worth bearing in mind additional fees that can arise when you choose to remortgage. Some lenders will offer low interest rates, but then have high arrangement fees, which are used by the lender to pay for the admin costs of the new mortgage.

Other potential fees to bear in mind when remortgaging include: 

• Booking fee – Some lenders will charge a booking fee to reserve a particular mortgage. 
• Valuation fee – This is sometimes included for free within a remortgage package and covers the cost of valuing your home. 
• Conveyancing fee – A solicitor or conveyancer is required to transfer your existing mortgage from the old lender to the new lender. 
• Broker fee – As mentioned earlier, some brokers charge a fee in order to find you the best deals. 

• Early repayment charge – This is a charge that is applied if you leave your current mortgage deal before the end of its term, or if you overpay on your mortgage above a certain amount. 

Credit to: https://www.landc.co.uk who supplied the above post.