Ten Remortgage Terms It is Vital To Understand
- By Howard Ogollegos
- Published 09/26/2011
- Real Estate
- Unrated
Switching your mortgage lender without moving home is called a remortgage. There are lots of benefits of remortgaging including reducing your repayments or borrowing extra cash. However, there are various things you should know before you embark on a remortgage. Here are ten terms you should understand.
Valuation: Your home will need to be valued as part of the remortgage process. The lender needs to confirm that there are no structural problems with your property as well as assessing the market value.
Arrangement Fee: An arrangement fee is a fee that is added when you apply for the mortgage, mainly for the administration costs of processing your mortgage.
Equity: It is the difference between the house's value and the amount remaining to be paid on the mortgage. Another way of putting it is that it is the money you have paid already (not including the mortgage interest) which under a remortgage you may be allowed to access/release to pay down unsecured debt or make home improvements etc.
Loan to Value: The loan to value is the amount in percentage form of your property that the mortgage will be. So for instance if your property is worth GBP 250,000 and you are only borrowing GBP 125,000, the loan to value is 50%.
Tracker Rate: A tracker rate is an agreed upon interest rate that you pay on your mortgage, it is usually a certain percentage above the Bank of England Base Rate. The tracker part of the rate is that your interest rate will only change when the Base Rate changes. For instance, the Base Rate at the time of writing id 0.5%, if your tracker rate is set at 3.75% above the Base Rate, your remortgage rate is 4.25%. If the Base Rate goes up 0.5% to 1% then your mortgage rate will be 4.75%, the 3.75% set by the mortgage lender never chang
es.
Agreement in Principle: An agreement in principle is when you submit the most basic information to the lender such as income, expenditure etc and they will then tell you whether or not that think that they would be able to lend the mortgage funds to you, based solely on the information you provide (i.e. without any credit checks). This is not the final decision but gives you an idea of whether they would accept your application.
Early Repayment Charges: If you unexpectedly come into some money and wish to pay down your mortgage with extra payments then expect to be levied an early repayment charge. This is especially true if you are in the special term of mortgage offering a generous fixed or variable rate. Always make sure that your current mortgage does not have Early Repayment Charges when remortgaging and keep in mind that your remortgage could also have them inserted for a set period.
Higher Lending Charge: When you take out a high loan to value mortgage, for example 90% or more, there may be a higher lending charge added to the mortgage. This is for the lender's own security as there is a higher risk of defaulting on the loan.
Fixed rate: If you want to guarantee your payments for a specified period of time, a fixed rate remortgage may be the answer. A fixed rate ensures that your mortgage repayments will not change for a certain period irrespective of what happens to interest rates.
Credit Reference Agency: When you apply for a remortgage, the lenders you approach will all do a credit check with a credit reference agency. In the UK, this will probably be one or all of the main agencies, Callcredit, Equifax or Experian. All the agencies will hold a maximum of 6 years credit history which will show any missed payments on bills or credit cards, CCJ's, defaults, loans etc, the less of these you have, the higher your credit score will be, meaning a better interest rate on your mortgage.
Valuation: Your home will need to be valued as part of the remortgage process. The lender needs to confirm that there are no structural problems with your property as well as assessing the market value.
Arrangement Fee: An arrangement fee is a fee that is added when you apply for the mortgage, mainly for the administration costs of processing your mortgage.
Equity: It is the difference between the house's value and the amount remaining to be paid on the mortgage. Another way of putting it is that it is the money you have paid already (not including the mortgage interest) which under a remortgage you may be allowed to access/release to pay down unsecured debt or make home improvements etc.
Loan to Value: The loan to value is the amount in percentage form of your property that the mortgage will be. So for instance if your property is worth GBP 250,000 and you are only borrowing GBP 125,000, the loan to value is 50%.
Tracker Rate: A tracker rate is an agreed upon interest rate that you pay on your mortgage, it is usually a certain percentage above the Bank of England Base Rate. The tracker part of the rate is that your interest rate will only change when the Base Rate changes. For instance, the Base Rate at the time of writing id 0.5%, if your tracker rate is set at 3.75% above the Base Rate, your remortgage rate is 4.25%. If the Base Rate goes up 0.5% to 1% then your mortgage rate will be 4.75%, the 3.75% set by the mortgage lender never chang
Agreement in Principle: An agreement in principle is when you submit the most basic information to the lender such as income, expenditure etc and they will then tell you whether or not that think that they would be able to lend the mortgage funds to you, based solely on the information you provide (i.e. without any credit checks). This is not the final decision but gives you an idea of whether they would accept your application.
Early Repayment Charges: If you unexpectedly come into some money and wish to pay down your mortgage with extra payments then expect to be levied an early repayment charge. This is especially true if you are in the special term of mortgage offering a generous fixed or variable rate. Always make sure that your current mortgage does not have Early Repayment Charges when remortgaging and keep in mind that your remortgage could also have them inserted for a set period.
Higher Lending Charge: When you take out a high loan to value mortgage, for example 90% or more, there may be a higher lending charge added to the mortgage. This is for the lender's own security as there is a higher risk of defaulting on the loan.
Fixed rate: If you want to guarantee your payments for a specified period of time, a fixed rate remortgage may be the answer. A fixed rate ensures that your mortgage repayments will not change for a certain period irrespective of what happens to interest rates.
Credit Reference Agency: When you apply for a remortgage, the lenders you approach will all do a credit check with a credit reference agency. In the UK, this will probably be one or all of the main agencies, Callcredit, Equifax or Experian. All the agencies will hold a maximum of 6 years credit history which will show any missed payments on bills or credit cards, CCJ's, defaults, loans etc, the less of these you have, the higher your credit score will be, meaning a better interest rate on your mortgage.
Howard Ogollegos
Howard O'Gollegos writes for Just Commercial Mortgages.com the UK's No.1 site for the latest commercial mortgage rates and commercial property finance news.
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