10 Terms Of Remortgage Jargon You Should Know When Remortgaging
Remortgaging is no more or less complicated than a standard mortgage you acquire when moving house. However the terminology involved can be very different, so with that in mind we’ve compiled a list of the top ten terms you should familiarise yourself with.
Valuation: No matter what the mortgage, the lender you partner up with will want a new valuation as the first step of the remortgage. This sets the house price valuation where it should be and reassures the lender that it is adequate security for the mortgage.
Arrangement Fee: Unless it boldly states the mortgage product is free of fees, then you can expect an arrangement fee on the remortgage product. As an example, the average fixed rate deal will can carry an arrangement charging anywhere between £300-1% of the mortgage value, which will be charged on top of the mortgage and/or paid when the process is finalised and completed.
Equity: The equity in your home is the difference between your outstanding mortgage and the value of your property. Many people tap into their equity when they remortgage by borrowing additional funds to consolidate other debts or to undertake improvements on their home.
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 £250,000 and you are only borrowing £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 changes.
Agreement in Principle: Obtaining an agreement in principle should be one of the first things you do when opening the remortgage process. The agreement in principle is not a binding contract, but is a very good indicator as the whether the lender will approve of your mortgage. Before a lender agrees to the ‘principle’ it will analyse the basic information, deposit, needs, credit check etc and see if the remortgage is on sound footing.
Early Repayment Charges: If you want to repay all or part of your mortgage during a special fixed or discounted rate deal, you may have to pay ‘early repayment charges’. Not only may there be early repayment charges on your existing mortgage but there may also be charges applicable if you plan to take out an introductory low rate deal with your new remortgage lender.
Higher Lending Charge: A ‘higher lending charge’ is a fee levied by some lenders if you borrow a high proportion of the value of your property as a remortgage. They can use the fee to buy insurance against you failing to keep up your repayments and them having to sell the property at a loss. It is designed to protect the lender.
Fixed rate: A fixed rate mortgage is just as it sounds. The rate of interest is fixed. This is usually for a specified period between 2 and 10 years, and these often carry a higher arrangement fee.
Credit Reference Agency: When you apply for a mortgage your credit rating will be checked in order to assess the level of risk that the lender will be taking on. Depending on the score, the lender will confirm whether or not they can accept your application. The credit reference agency is the agency that holds all of your financial information, including details of any credit you have, as well as repayment history.
Timothy Frodsham writes for JustRemortgages.com one of the UK’s
top sites for the latest remortgage rates and best remortgage deals.