Remortgage Information
Applying for a mortgage
When making a mortgage application, it is vital to answer all the questions truthfully, as you may be committing fraud if you knowingly make false statements to obtain a mortgage.
Conveyancing
When remortgaging, conveyancing services are required. A lender may, as part of the remortgage deal, offer basic conveyancing and will appoint and pay, for the conveyancing. If you required legal advice yourself, you would have to employ your own solicitor.
Credit crunch
The phrase 'credit crunch' has now entered the language. It is a term used to describe the lack of liquidity (freely-available money) due to the inability, or unwillingness, of banks to lend to each other.
Banks are not willing to lend to each other as they do not know the extent of each other's liability to so-called 'toxic mortgage debt', one of the original causes of which was American (USA) 'sub-prime' borrowers defaulting on their mortgages.
Credit searches
A lender will normally undertake credit references upon receipt of a mortgage application and may also supply information to Credit Reference Agencies regarding the way that a mortgage account is managed.
Early repayment charge
During an introductory rate period, it is commonly (but not always) the case that an early repayment charge will apply.
If an early repayment charge goes on beyond the end of an introductory rate, it is commonly known as an early repayment charge overhang.
Equity
The ability to remortgage will be subject to having sufficient equity available in your home. 'Available equity' means the value of your home, less the outstanding mortgage. Due to the credit crunch, the best remortgage deals typically now require at least 25% available equity.
Flexible mortgages
All of the above rates are available in so called “traditional” mortgages. In recent years, a new style of mortgage, by common consent called flexible mortgages has become available. (See also: offset mortgages.)
High percentage loan insurance
If you need to borrow more than 75% of the purchase price of your new home, high percentage loan Insurance may be required by a lender.
A first-time buyer would perhaps argue that the previous system was better, as the availability of easier credit is probably the biggest cause of the explosion in house prices in recent years, pricing a lot of people out of the market.
Home insurance
A lender will, as a condition of the mortgage, require buildings insurance to be in place.
Although it is not a condition of having a mortgage, we strongly recommend that adequate contents insurance is also in place.
Interest rate types
There are several different types of interest rates generally available. A particular mortgage lender may offer some or all of the different types. The main introductory rates are:
- Standard variable rate
- Discounted rate
- Fixed rate
- Capped rate
- Capped and collared rate
- Tracker rate
- Libor rate
- Cash back
Introductory interest rate
To procure business, it is commonplace for lenders to offer a special introductory initial interest rate.
Once the introductory rate has ended, the duration of which would be clearly stated on your mortgage offer, your interest rate would revert to a long-term rate, which would last for the duration of your mortgage with that lender. This long-term rate may be a tracker rate, or more commonly, the lender's standard variable rate.
Mortgage
A mortgage is a transfer of the legal ownership (known as the 'legal title') of a property from one person or entity (the borrower) to another person or entity (the lender.)
Until the mortgage is discharged (fully repaid) the lender is the legal owner of the property.
Upon the mortgage being repaid in full, the legal title, and therefore the ownership, of the property will pass to the borrower.
Mortgage life and critical illness insurance
If you have a mortgage, we recommend that you have critical illness insurance that would pay a lump sum to enable you to pay-off your mortgage if you were to be critically ill.
In addition, if you have dependants, we strongly recommend that you have life insurance that will pay-off your mortgage if you should die. If you do not have mortgage life cover, your family could lose the home if they are unable to pay the mortgage if you die.
Mortgage payment protection insurance
Mortgage payment protection insurance is a form of cover that can pay your mortgage if you are made redundant or are unable to unable to work due to accident or sickness.
Negative equity
Some huge capital gains have been made by investing in property, however, it should be borne in mind that property prices are not immune from falling, and a lot of people will remember being in negative equity in the early 1990’s.
Indeed, property prices are now generally declining and it is possible that some people who may have recently bought a home with little or no deposit, are already in a position of negative equity.
Offset mortgages
An offset mortgage is a type of flexible mortgage which allows you to offset your savings against your mortgage.
Owning a property jointly
If two or more people own a property, it will normally be on a joint tenancy or tenants in common basis.
If either of the people owning the property are unmarried or not of UK domicile, then different rules apply concerning the possibility of Inheritance Tax becoming due in the event of death.
Each person who is a party to a mortgage has joint and several liability.
Portability
If a borrower wants to move home during the period that a redemption penalty applies, then the lender will normally waive the penalty if the mortgage has a portability option.
Repayment and interest-only mortgages
There are two main types of mortgage, capital and interest, otherwise known as repayment and interest only.
Repossession
If you do not pay your mortgage your lender may repossess your home.
Stamp Duty
Stamp Duty Land Tax, is not payable when you are simply remortgaging your home.
Valuation and survey
If you are remortgaging, you would normally only have a basic valuation carried out.
Occasionally, as part of a particular remortgage deal, a lender may carry out a free basic valuation.
