Re-Mortgaging

Coming to the end of a fixed period?

Wondering if you have the best deal on the whole of the market?

Our advice could not only save you a significant sum but will also assess your options and risks to ensure you take the most suitable course for your situation.

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Should I take a fixed rate mortgage now?

With record-low interest Bank of England interest rates and some commentators expecting them to last, this is an interesting time with some very low fixed rates are available on the market. The question is whether to fix now - nobody can say when rates will rise, only that they eventually will. However what we can assess is your ability to absorb the increase in costs when they do. The risks can be broadly summarised as follows;

Trackers & variable rate mortgages can offer very low rates currently, but if you don't take a fixed rate you are at risk should a rate increase happen.

Short term (2-3 year) fixed rates can currently offer rates as attractive as trackers, offering a very attractive monthly cost and certainty in the short run. However, you're still at risk of market rate increases once the short term comes to an end.

Longer term (5 years plus) fixed rates offer the greatest certainty, and are popular with people who prefer to minimise risk. However, this longer term certainty comes at the cost of missing out on the currently low shorter-term fixed or tracker rates.

These aren't of course the only factors to be considered. Many fixed and tracker rates have significant early repayment penalties and hence could be very costly if you need to sell up, move or repay a significant sum before the end of the term. Also there may be significant fees involved which could cancel out some or all of the advantage a rate offers.

Your adviser will run through the options with you, examining and making you aware of the opportunities and risks before making a recommendation.

Capital Repayment or interest-only?

With an interest-only mortgage you pay the interest each month so that the mortgage balance remains the same - you don't pay off any capital as you go. This means that at the end of the term the bank will demand the full balance and can insist that the property is sold to repay it if you can't pay the bill any other way. If selling doesn't raise enough money to pay off the mortgage then you could be forced to use investment/pension assets or even be made bankrupt! Clearly this is a significant risk.

With a capital-repayment mortgage the payment is sufficient to pay off the interest AND some of the capital each month, with the amount calculated to be sufficient to completely repay the mortgage by the last payment.

We generally recommend capital-repayment mortgages for home purchases, as the certainty of knowing that your home will be yours at the end provided you make all the payments is very valuable indeed. However, interest-only mortgages can be suitable for some. For example;

If you have an endowment policy, ISA, pension commencement lump sum or other investment vehicle which is expected to be sufficient to repay the balance by the end of the term. However this is a risky strategy! The rewards could exceed the mortgage balance, giving you a profit at the end, but a shortfall could force you to sell your home or worse.

If you are self-disciplined enough to make overpayments to your mortgage to ensure that the balance is paid off by the end. This has the advantage of greater flexibility, as you can drop back to the interest-only payment amount whenever you like. However if you lack either the discipline or the long term capability to make the required over-payments you could still be left with a balance due at the end of the term and be forced to sell the house

If you fully intend to downsize the property or sell up at the end of the term to repay the mortgage. This still carries the risk that you may not raise enough from the sale to both pay off the mortgage and buy a smaller property. It's possible that if the housing market moves against you then the sale might not be enough to even repay the mortgage!

Reading this should give you a clear message that interest-only mortgages are less certain and more risky than capital-repayment mortgages, hence we almost always recommend capital-repayment. However, your adviser will go through the options with you in depth and explain the consequences of either route in relation to your own circumstances before making a recommendation.

Whether or not you'll be able to move to another lender broadly depends on the following;

Can I Re-Mortgage?

How much equity you own in your home. You'll normally need to own at least 10% of your home (after the mortgage) in order to re-mortgage with another company, though not always.

Your income and affordability. You'll need to prove to the new mortgage lender that you can comfortably afford to make the payments on the new mortgage. This will be easier the more you earn, and harder the greater your outgoings and other debts.

Your payment history & "Creditworthiness". If you've missed past payments on your mortgage, on any other debts or you've had CCJs, defaults or bankruptcies then this could stop you re-mortgaging. However, relatively minor "blips" on your credit record won't necessarily stop you.

Are you protected?

Most people accept that life insurance is important to protect your family when taking a mortgage. However, few contemplate whether their family will actually be able to run the home if they're gone.

Would your partner be able to support the household expenses when you're gone, even with the mortgage paid? If not (as is often the case) it may be possible to insure an income for the survivor, allowing them to become a full time single parent in financial security.

Would you be able to afford the mortgage if one or both of you was seriously ill long term? Critical illness insurance can pay off your mortgage in the event of heart attack, cancer and other "critical" conditions, but it can't replace the income of the ill partner. Income protection insurance could replace your income long term if you were seriously ill, but would it be sufficient to pay the mortgage?

Very often a single policy is not sufficient to protect a family. Your adviser will help you review your existing policies, identify the liabilities you face and make recommendations accordingly. We'd always advise that this is carried out when reviewing such an important long term solution as a mortgage, though of course this is strictly optional.