Why shouldn’t I remortgage?

Although for the majority of mortgage holders, remortgaging your property will give you a better deal, occasionally however this may not be the case as highlighted below:

The unfortunate ones where timing is bad

Mortgage rates and fees fluctuate constantly; in relation to the Bank of England’s base rate, what’s going on in the international money markets and Lenders’ own business priorities. It is possible that the sums will simply not add up for you when you first consider remortgaging. In which case it may make sense to sit tight and reconsider your options in a couple of months.

People who own less than 25% of their property

If you own less than a quarter of your property outright, or put another way, need to borrow more than 75% of the total value of your property, then you’ll often find it difficult to get a good new mortgage deal. It’s still worth checking the deals available for those with little equity in their property as, though they are few and far between, some do actually exist. Be warned, though, that they usually come with high interest rates which may make the idea of switching meaningless.

That said, by the time you read this, the situation may have improved for those with less than a 25% deposit. You may have had a 10% deposit a year ago and got a reasonable mortgage, borrowing the remaining 90% of your home’s value. But now, as house prices have dipped, so the amount you owe is a bigger proportion. Unfortunately, you’re a victim of evaporating equity, even if you have been making regular repayments, and that can hurt you. In some cases, you may be in negative equity, where your mortgage is actually higher than the value of the property.

People whose circumstances have changed

It’s possible that if your financial position has altered since you took out your current mortgage  if, for instance, one part of a couple has stopped working or you become self-employed, new lenders may not be eagerly prepared to offer you a loan because you no longer fit their criteria. Again, you may be better to stay where you are for the time being.

People with a bad credit score

If you have a bad credit score, like missing a few credit card, loan, mortgage or utility bill payments, it’s unlikely that you’ll be able to remortgage at the time of writing. That’s because the credit crunch has made lenders much more selective in whom they lend to. They want customers with spotless repayment histories.

People with a very small mortgage

Once your loan falls below a certain amount – say around £50,000, it may not be worth switching lender simply because you may not make a saving if the fees are high. In fact, some lenders won’t even consider mortgages below £25,000. The smaller your mortgage, the bigger the effect any fees you pay to remortgage will have. And with many new deals offered on the basis you pay a four figure fee, make sure you do the maths to work out if you’re better off switching or not. In some cases, it may be worth remaining on a higher interest rate to avoid the fee. Borrowers who are very close to the end of their mortgage term may also find it prohibitively expensive to move. Choosing a mortgage is like ordering breakfast in a British cafe. It’s a series of choices which seem to go on forever but which should help you identify what you want and actually require. Think back to why you want to remortgage in the first place, and that should help you work out what you need your new mortgage to do.

The first choice is between interest only and repayment. Unless you have a very compelling reason, repayment should be the way forward. It’s the only option which guarantees that you are actually paying off some of your debt every month. With an interest only mortgage you just pay the interest on the debt, and in most cases, set up an investment which you hope will build up enough cash to pay off the actual cost of the house. There are some mortgages designed for first time buyers which let you just pay the interest for the first couple of years and then convert to a repayment. That might work if you’re struggling to get on the property ladder but it’s important to make sure you do shift to repayment when you can. The sooner you start paying off your mortgage, the sooner you’ll finish.

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