Re-mortgaging for the first time!

purcel

I am hoping that you lovely peeps might be able to help me understand better my situation so we'll make the best decision. I apologise if this situation had been answered before but I could not find it whilst searching.

So...Bought our house almost 3 years ago and our fixed rate will end in March next year. Our fixed rate was 6.59% over 30 years. House was bought for £152 000, and borrowed £136 000 plus £999 fees added to the mortgage. Monthly payments are £874. House was valued at £151000 at the time.

Now, a couple of houses on our road sold this summer, same as our one, for £160000 and £168000. I understand that when remortgaging, a new valuation will be carried out, so will/can our house be valued at more than we had paid for and how this will influence the new interest rate?

Also, when remortgaging, we would like to keep our monthly payments around the same as now, so will it be better to reduce the term of our new mortgage, say from 27 years to 20, assuming we find a good interest rate, or keep the term as it is and overpay? Also it is best to fix for 2, 3 or 5 years?

Thank you all xx

Consumerist

purcel wrote: »

Now, a couple of houses on our road sold this summer, same as our one, for £160000 and £168000. I understand that when remortgaging, a new valuation will be carried out, so will/can our house be valued at more than we had paid for and how this will influence the new interest rate?

Also, when remortgaging, we would like to keep our monthly payments around the same as now, so will it be better to reduce the term of our new mortgage, say from 27 years to 20, assuming we find a good interest rate, or keep the term as it is and overpay? Also it is best to fix for 2, 3 or 5 years?

Yes the house will be revalued when re-mortgaging. Since the value of your house appears to have increased since original purchase and also the outstanding balance should have reduced, you should have a lower LTV when re-mortgaging. This may help you get a better rate.

From a financial point of view, the quicker you repay a mortgage the lower the overall cost but times are currently uncertain so only you can decide whether a lower minimum commitment would give you more options if the unexpected happens.

There is a trade-off between the length of a fix and the rate/fee you pay. It has to be your call on that. There is no obvious right or wrong.

opinions4u

The first option to consider is doing nothing.

What SVR will you go on to with your current lender?

purcel

The current lender is Natwest and the SVR is 4%

bigadaj

If you remortgage to another lender then they will commission someone to value your house independently, this will reflect recent sold prices but will be conservative, ie probably on the low side. This might be a little less than 160k which would be good as you loan to value will reduce opening up more and better mortgage products. Your original loan was at 90% so getting below this is very important.

You are likely to go onto your providers standard rate at the end of your fix, so check what this is, you can then approach your current lender about alternative products a few weeks before your fix ends. Comparing these against advertised deals will then give you an idea of whether the offers are any good. Product fees can be significant on short fixes, and many people's view is that interest rates will probably be low for many years, so it may be good to go onto a variable rate. This depends on how tight your finances are if rates do increase.

In terms of overpayment then it might be better to keep the mortgage Term the same as you will be paying capital down and should times get tough you may more easily be able to drawdown on your overpayments.

Consumerist

purcel wrote: »

The current lender is Natwest and the SVR is 4%

Your SVR is lower that the fixed rate. In that case I don't think I would be in too much of a hurry to re-mortgage unless I could undercut the 4% SVR or I needed the certainty of a fix.

purcel

Looking through moneysupermarket, looks like we could get a 3 year fixed with Yorkshire building society for 3.65%, providing that our house is valued at £157000 approx, which is better than the 4%SVR, AND reduce our term to 20 years, AND keeping the payments under £800, which is much better!

Really difficult to decide what to do! At the moment we are comfortable paying the current £874 a month, plus when the term of our current mortgage expires we will finish paying a loan which is currently £200 a month, meaning we will have the extra money.

Consumerist

purcel wrote: »

Looking through moneysupermarket, looks like we could get a 3 year fixed with Yorkshire building society for 3.65%, providing that our house is valued at £157000 approx, which is better than the 4%SVR, AND reduce our term to 20 years, AND keeping the payments under £800, which is much better!

Don't forget to factor in any "mortgage arrangement" fee which could nudge the effective rate up to or over the 4% current SVR. It sounds as though it's going to be a close call.

Old_Git

are there any legal fees attached to this .Will natwest offer you a better deal

purcel

there will be additional fees involved. How do i calculate if with fees i'll be better off than staying on my SVR? Natwest wrote a letter saying that they will write to me nearer the time about our options, but looking through their website, no they don't seem to offer a better rate.
Thank you for your help, I haven't actually considered before staying on SVR and overpaying for a few months, it may help with our loan to value percentage.

Consumerist

purcel wrote: »

. . . How do i calculate if with fees i'll be better off than staying on my SVR?

I made it about £4,000 as the maximum acceptable additional charges to keep your effective rate below the 4% SVR.

You may find it instructive to use the <MSE Mortgage Calculator> (Basic mortgage tab) to check the numbers for yourself.

For your current £137,000 loan @ 6.59% pa gross over 30 yrs, the repayments are £874 pm and the balance owing after 3 yrs will be about £132,170. If your property is valued at £157,000 the LTV will then be about 84%.

Now for the answer to your question - how much can you borrow without the effective rate exceeding the 4% SVR? I have assumed any fees and charges will be added to the mortgage.

If you stay on the 4% SVR and reduce the term (£132,170 over 20 yrs), from the Mortgage Calculator, your repayments would drop to about £801 pm. So this is the maximum monthly payment you would find acceptable if you re-mortgaged.

But, if you do re-mortgage, the rate you expect to pay is 3.65% pa. So, in the Mortgage Calculator, change the 4% rate to 3.65% and then gradually increase the amount of the loan and re-calculate until you get a monthly repayment of £800 pm (not £801 - to allow for rounding errors)

You now know the maximum acceptable re-mortgaged loan amount at 3.65% pa - I made it about £136,200

So the maximum amount of fees & charges you will accept being added to the mortgage is £136,200 - £132,170 = £4,030. I doubt that charges would be this high but you should check with the lender.

Using the calculator, you can play around with various scenarios if you don't mind putting in the time; it could help you make better decisions now and in the future.

You should, however, bear in mind that a new fix will give some certainty for the next few years. No-one knows where SVRs might be by then but Funding for Lending won't last forever.

Hope this helps.