How To Remortgage To Get A Low Interest Rate

Choosing when to remortgage if you are looking to do just that can be difficult. There is a lot to consider when remortgaging your home, but the simple answer is yes, you should do it when the interest rates are low.

Use Equity From Your Home

Your equity is the stake or share of the property you own outright. Your deposit is the stake you own, and the mortgage borrowing is what the lender owns.

If the value of your home has increased, you’re able to remortgage your property and release the added value. You do however, need to remortgage at a higher amount to your current mortgage.

Here’s How Equity Works:

Let’s say you purchased a £200,000 house with a £180,000 mortgage. In this instance, you would own 10% of your home outright. The lender would own the other 90%.

After making regular repayments for a couple of years, totalling £40,000, your equity in the property increases. You would now own 20% equity.

In the years since you bought the property, the property’s value increased, so it’s now valued at £300,000. This means you would have £160,000 equity in the property!

If you remortgaged using a lower loan-to-value with the equity you have, you are likely to get a much lower interest rate.

Get A Fixed Rate To Guard Yourself Against Rises

If you want to remortgage and the current interest rates are low, a safe option would be to get a fixed deal. This will lock the repayments you make for however long your fixed rate is for. If you secured a fixed rate mortgage today for five years at 2.5%, and the interest rate increased to 3.5% next week, it would not affect you. This would ensure you are only paying what you agreed with the lender.

A variable rate mortgage on the other hand would mean your interest rate would fluctuate depending on the UK economy and several other factors. So when interest rates increase, you would be making higher repayments, however you could pay less if the interest rates decrease.

The safe option is to get a fixed mortgage whilst interest rates are low, so you can ensure you will be repaying the same figure every month.

Improve Your Credit Score

Admittedly, this will not be helpful if you need to remortgage now, but if you know that your home is up for mortgage in a year’s time, increasing your creditworthiness could help you find a better mortgage deal.

Applying for a mortgage is already an ordeal, and many lenders frown on people with a mixed credit history. The lenders offering the most competitive interest rates will only lend to people with a good credit score.

There are many ways to improve your credit score:

Repay existing loans

Obviously you are not expected to completely repay your larger credit commitments like a mortgage or a student loan, but smaller lines of credit like credit cards. If you have balances that you are repaying slowly, try to pay these off: it’ll also save you money on interest!

Don’t Apply For More Credit

Other than your remortgage, try not to rely on credit if possible. By steering clear of short term loans and credit cards, you will show the credit bureaus that you can manage your money well.

Fix Errors On Your Credit Report

You may not know it, but many credit files contain errors that are negatively affecting their credit rating. Information like your name and date of birth and whether you’re on the electoral roll is on there. Check your credit file out to make sure all the information on there is correct!