Remortgage your property
Will your fixed-rate period expire shortly? Would you like to remortgage your interest-only mortgage? Or would you like to refinance your mortgage? At the current low interest rate it is a good idea to see whether you can benefit from remortgaging your property with a different lender. By remortgaging you can obtain a lower interest rate, better conditions or both. And it makes sense to not only look at the offer of your current lender.
Step-by-step remortgage plan
In this article, we explain what to keep in mind and how to best prepare for a remortgage.
Step 1: Check your current lender’s interest rate
Remortgaging your property is only relevant if your current lender no longer offers the best interest and conditions. In a market of 35 lenders there is a good chance you can get a better deal somewhere else. In order to calculate how much you will benefit, you must first know the interest rate your current lender is offering. Mortgage-interest rates can be found online, either on the lender’s website or in a list of interest rates of all active mortgage providers in the market.
In order to compare interest rates, you need additional information. Firstly, you need to know the risk category of your mortgage. Lenders offer better rates as the mortgage sum is lower compared to the value of the property. Has your home gone up in value in recent times? In that case there is a chance that you are now in a more favourable risk category, and that lenders will offer you a lower interest rate. However, you have to demonstrate the value of the property. You can do this by asking a valuer to draw up a valuation report. In some cases a WOZ assessment (property appraisal) will also do.
Tip: If you do not remortgage and stay with your current lender, you can also ask the lender to adjust the mortgage rate to the lower risk.
Do you know the value of the property? Then you can divide the mortgage sum by the value of the property. This provides what is known as the loan-to-value ratio. Check your current lender’s interest rate for this specific risk category.
Will your fixed-rate period expire within three months? Then you should receive a letter telling you the interest rate your lender is offering you for the next fixed-rate period.
Step 2: Comparing mortgage providers
Comparing mortgage interest rates is not difficult. Just one look at the list of interest rates offered by all providers can tell you whether you could save money by transferring to a different provider. You don’t have to negotiate, because lenders are obliged to communicate their rates transparently on their websites.
Tip: providers use different risk categories. Sometimes the interest rate goes down if you borrow less than 90% of the value of the property, whereas another provider may give you a discount on a loan of less than 95% of the market value. Our advisers know the market and can immediately tell you what the options are.
Step 3: Is a remortgage possible?
If you have a more than adequate income and the mortgage is lower than the value of the property, remortgaging will be no problem at all. In the following situations it is advisable to discuss with one of our advisers whether remortgaging is an option or not:
- When you took out the mortgage, you borrowed (almost) the maximum amount possible: due to more stringent rules for mortgages, there is now a change you can no longer borrow the entire amount (even if you have never missed a monthly repayment);
- Your income is now lower than when you took out the mortgage;
- You now run your own business and you have been an entrepreneur for less than three years (options are available for people who have been entrepreneurs for one year or longer, but this is dependent on the specific situation);
- You have entered into debt or maintenance obligations;
- You have a residual debt (again, options are available, but acceptance by a new lender depends on your situation).
You can assess your chances by yourself by using the mortgage-calculation tools on our website.
Step 4. Is remortgaging profitable?
By remortgaging your property it is often possible to make (considerable) savings on your monthly repayments. On an interest-only mortgage of € 300,000, a 0.5% difference in interest rate already yields a saving of € 1,500 per year.
But there are also costs involved. One-off costs include:
- Advice and brokerage by Viisi
- Mortgage contract by civil-law notary
- Valuation report
- Penalty interest (depending on the remaining fixed-rate period and the interest rates of your current lender)
All these costs are tax deductible. The penalty interest is usually the greatest expense and can be a reason to decide not to remortgage. We will explain this below based on some examples.
Step 5. What is the best time to remortgage?
This last question is about when you should actually proceed to remortgaging. We will of course be pleased to help: you are always welcome to make a free telephone appointment with one of our mortgage advisers to discuss your situation and set the best time frame. Here are some rules of thumb:
My fixed-rate period will expire within 12 months
If this is the case, this is the right time to explore your options. You can make all the remortgage arrangements at this time, so that in 12 months’ time you will have a new mortgage. The longest mortgage offers are valid for 12 months. Of course, you can wait a little longer if you expect the interest rate to fall in the next few months. The lower the interest rate, the more money you will save with remortgaging your house!
My fixed-rate period will expire within 7 years
First of all, you have to consider what you expect interest rates to do. Nobody can accurately predict what the mortgage interest rate will do over the next few years, so you can only know what is best with hindsight. Do you expect the interest rate to fall? Then it is better to wait. Do you expect the interest rate to rise? Then it can be worth remortgaging at the current low interest rate.
The benefit of a remortgage is that you will have lower monthly repayments. It can also give you more security in the long term. If your interest is currently still fixed for several more years, you can fix the interest rate in your remortgage for another 10 or 20 years (at the current low rate). The downside of a remortgage is the costs involved.
I have a savings-based mortgage or annuity mortgage
If the mortgage is repaid from the balance of a bank savings account or an annuity repayment, remortgaging is often not financially very interesting. This is because the benefit of a lower mortgage interest rate in these types of mortgages is (partially) counteracted by the fact that the deposit for the savings account or the repayment charges will rise. On balance, a lower interest rate will almost always save you money, but the benefit is strongly reduced in these types of mortgages. It is doubtful that this limited benefit is sufficient to recoup the costs. In fact, often this is not the case.
Tip 1: Take action immediately if you have a partially interest-only mortgage with a fixed-rate period expiring within 12 months.
Tip 2: Sit back and wait if you have a savings-based or annuity mortgage for which the interest has been fixed long term.
We recommend that based on the information in this blog, you should assess the benefits and possibilities of remortgaging your property. Are you in the category ‘almost always a good idea to remortgage’? Or are you still unsure? Just contact us and we will discuss all the options, without any obligation.