10 Terms Of Remortgage Jargon You Should Know When Remortgaging
Switching your mortgage lender without moving home is called a remortgage. There are lots of benefits of remortgaging including reducing your repayments or borrowing extra cash. However, there are various things you should know before you embark on a remortgage. Here are ten terms you should understand.
Valuation: Your home will need to be valued as part of the remortgage process. The lender needs to confirm that there are no structural problems with your property as well as assessing the market value.
Arrangement Fee: Many lenders charge an 'arrangement fee' when you remortgage. This varies from around £300 to up to 1 per cent of the mortgage amount and is generally added to the mortgage (although you can pay it on completion). Arrangement fees often relate to specific mortgage products such as fixed or discounted/tracker deals.
Equity: Equity is the amount of the property that you actually own, or to put it another way, how much of your mortgage you've paid off. For example, if your property is worth £250,000 and your mortgage is £200,000, you have £50,000 equity in your property.
Loan to Value: More commonly abbreviated to LTV, it is the amount you are looking to loan compared to the overall value. In other words if you are looking for a remortgage of £80k and the property's value is £100k, then the LTV is 80%. One thing to always remember is that the lower your LTV rate is, the lower your remortgage interest rate will be whether it's a variable or fixed rate.
Tracker Rate: Every lender has a tracker rate, and simply put it is their variable interest rate that tracks the Bank of England base rate. So if the base rate moves up or down, so does the tracker rate. It is often set to 1% or 2% above the Bank of England's base rate.
Agreement in Principle: An 'agreement in principle' is an indicative idea from a lender as to whether they will agree the remortgage you require. A lender will take some basic information from you and generally undertake a credit score to establish whether they are able to agree your remortgage. Bear in mind that an agreement in principle is not a binding decision and so a lender can still change their mind.
Early Repayment Charges: Early repayment charges usually apply to fixed rate mortgages. If you redeem the mortgage before the end of the fixed rate period then you may have to pay a fee to do so. This may apply to other types of mortgage products too such as discounted or capped mortgages.
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 remortgage deal guarantees your monthly mortgage payments for a specified period. Irrespective of changes to interest rates a fixed rate ensures that you know exactly what your home loan payments will be for a set term.
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.
About the Author
Timothy Frodsham writes for http://JustRemortgages.com one of the UK's top sites for the latest remortgage rates and best remortgage deals.
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