Remortgages and How to Arrange Them

This section focuses on answering all your remortgage related questions:

We will also explain mortgage repayment options, including:

We recommend Stepping Onto the Property Ladder section for those who start their mortgage adventure.

Those who already understand the basics will find Additional Mortgage Costs and Mortgage Insurance sections an interesting read.

At the end we will provide you with many useful Remortgage Tips.

Your Existing Mortgage

Before thinking of approaching anybody about this, you should find out exactly what your existing mortgage agreement involves.

Like most people, you probably know what your monthly payments are, but won't be sure how much of that is interest and how much is repaying the principal. In fact, do you even know how much you still owe on your mortgage? Probably not!

It is easy to get these details: just check your last annual mortgage statement or call your mortgage provider. It's possible that you have a special deal already and there might be a penalty for moving your mortgage to another lender while the deal is on. You might also be charged for closing the mortgage in addition to the redemption penalties applied, and this might make a difference to the overall costs of your remortgage.

In fact, many companies have raised these fees in order to dissuade customers from switching to another provider, and you have to know all of this information before deciding to remortgage your property. Such extra costs will increase the remortgaging costs.

What Deals Can You Get?

Most people are paying the Standard Variable Rate of mortgage interest, and you can likely negotiate below that. If you have a €200,000 mortgage, you could save up to €4,000 a year.

If you want the cheapest mortgage then check your loan to value ratio (LTV). Get that by dividing the outstanding amount on your current mortgage by the estimated value of your property: the lower the better. You certainly don't want it to be 1.0 or higher or you will be in negative equity.

It will cost you to switch your mortgage, and apart from any penalties imposed by your existing lender there will probably be a mortgage application fee (up to €500 for the cheaper deals available), and also valuation and solicitor's fees. All of this amounts to a fair cash sum you will have to pay.

What You Save

These are the costs, but what will you save? You can negotiate the best deals by getting quotes from three or four lenders and comparing the costs and your monthly repayments, both with each other and with your existing costs.

Make sure that you are comparing apples with apples - don't compare a repayment mortgage with an interest only one, or a fixed rate deal with a tracker.

Make sure the terms are also the same: If you have 15 years left to run on your current mortgage, then compare with a new mortgage over 15 years. Any different and you will get a false comparison, and a shock when it comes time to make repayments. Work it out properly.

Get the Calculations Right

First you should add up the immediate costs: any fees or penalties applied by the existing lender plus any costs involved in setting up the remortgage.

If the penalties for changing are, say, €400 and the costs of arranging a new mortgage are €500; your total immediate costs are €900. Secondly, calculate your monthly savings in repayments: let's say €150 a month. Divide the initial cost by your monthly savings (900/150). That means that you will recover the immediate costs in 6 months, after which you will be €150 a month better off.

If that is for the cheapest mortgage deal you can find, and includes a limited-term low cost offer, you might find that you will have to search around again once the offer period is over (usually a number of years). You might decide to remortgage again, or not if you are still saving a fair amount. Try to get the special deal over 5 years or more.

Bargain with your Existing Lender

Get back to your existing lender with the amount you can save now worked out, and ready for negotiation. Let them know what you are able to arrange elsewhere, and they might offer you a better deal than you have at the moment.

They might want your business so bad, especially in the current economic situation, that you could be offered the same interest rate as the proposed new mortgage. That would likely be offered without any additional charges, so you actually save more!

If they refuse, then switch. It's as simple as that - you can't lose, only your existing lender if they refuse to play ball.

How to Save Even More Money

If you are not having problems in meeting your existing payments, rather than remortgaging to save on monthly payments, maintain your existing payments and pay off your mortgage quicker.

So negotiate a better deal with a new lender, but keep your existing monthly payments. Make sure that you won't be overly penalized fro settling sooner than projected. You could save a lot of money on interest payments that way, and you will own your house outright much sooner.

How to Keep Costs Down

There are things you can do to keep your costs as low as possible.

Purchasing property is not cheap, and the first step you should take is to know how much you can spend on your mortgage, and how much you can borrow. You should have that information before you start looking at houses.

The amount you can borrow will depend on the value of the property and your earnings – or your combined earnings if you are a couple. However, due to problems with sub-prime mortgages, and repayment difficulties, lenders are increasingly looking at how much you can afford to pay as opposed to how much you earn.

If you have demonstrated that you can handle credit well, you are liable to get a larger mortgage than if you have run up loads of credit card debts, or have even missed some payments. Under normal circumstances you can expect to be offered a mortgage of between 3.5 and 4 times your gross joint earnings. Some lenders might offer more if you have an excellent credit record, or are paying a large deposit. That makes the repayment more secure in the event of foreclosure.

Here's an example to show you how that would work. Let's say you are earning €40,000 a year before deductions and your partner €30,000. You would be offered 3.5 x 70,000 = €245,000. If you are putting down a good deposit and your lender is prepared to offer 4 x your income, you could be offered as much as €280,000. You be offered even more if your credit record is exemplary, and any bonuses you get on your income could also be taken into account.

Deposit Payment

Very few mortgage lenders offer 100% mortgages these days.

You have to make an initial payment yourself, commonly referred to as a deposit, though you don't get it back – at least not until you sell the house. Even a 95% mortgage will likely involve a higher interest rate and probably large arrangement fees. Work on the basis of being offered a 90% mortgage, with you paying the balance in cash.

It is generally the case that your interest rate will be lower the higher deposit you pay. Not only that, but another benefit of paying a large deposit is that if house prices drop you are less likely to go into negative equity (owe more on your mortgage than your property is worth). If you are in negative equity you will find it next to impossible to sell your house, unless you are able to fund the difference yourself.

Remortgages are not difficult to negotiate, but make sure that you have done your sums properly, and are aware of, not only all the costs involved, but also the savings that you will make. Leave nothing to chance because we are talking large sums of money, and a small change in interest rate can relate to a lot in cash terms.

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