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your guide to contents re-mo rtgaging what is re-mortgaging? why should you consider a re-mortgage? 5-6 4 you want to re-mortgage but how do you go about it? 7 Step 1 8 Step 2 9 Step 3 11 - 12 Step 4 & 5 13 glossary 14 - 19 for more information or to apply phone are you shelling 0800 234 6761 www.co-operativebank.co.uk/mortgages out too much on we are here 8am to 8pm Mon to Fri and 9am to 2pm Sat. ref: 40480 your mortgage? what is re-mortgaging? “Re-mortgaging currently accounts for 38% of the mortgage business conducted in the UK.” Source: Council of Mortgage Lenders (CML) September 2006. So what does it actually mean? A re-mortgage is when you change your current mortgage to another mortgage deal, either because your current deal has come to an end or to release some of the equity in your home. In recent years more and more people have been looking to re-mortgage and as there are a whole range of different mortgages out there it can be extremely confusing. That’s why we’ve produced this handy guide to give you the information you need. We can help you save on fees, reduce the hassle and make it a whole lot easier to transfer your mortgage. 4 why should you consider a re-mortgage? There are many different reasons for re-mortgaging. The most popular of these are: 1) To save money – if you have a mortgage you could benefit from re-mortgaging to a new product and/or lender to reduce your monthly repayments. 2) To raise additional capital – many houses will have larger market values now compared to when they were originally purchased. Re-mortgaging could allow you to access this extra equity enabling you to make home improvements, take a special holiday or buy a car. 3) To reduce the length of the mortgage – many home owners may be able to afford higher repayments now compared to when they took out their original mortgage. Re-mortgaging could allow you to change your product to increase your flexibility to make larger monthly payments which will in turn reduce the length of the loan. 4) To switch from an unsatisfactory lender and/or product – as circumstances change, so can your mortgage needs. Re-mortgaging could allow you to take out a new mortgage product that is more suitable to your current situation. 5 you want to Discounted Variable Rate Just like it says you pay a discounted rate below the Bank’s Standard Variable Rate (SVR) for an agreed period of time. This keeps your initial costs down but your repayments will still go up or down in line with changes to interest rates and the SVR. re-mortgage but how Tracker Rate Mortgages A tracker mortgage gives you a rate of interest either above or below the Bank of England Base Rate for a set period or for the life of the mortgage. Any changes to the base rate will be reflected in your monthly repayments, so if it goes up so will your do you go about it? repayments and if it goes down then you’ll benefit from the rate going down too. Capped Rate With a capped mortgage, you have all the benefits of a variable rate product at a Like your first mortgage, deciding to re-mortgage shouldn’t be an impulsive rate that won’t go above the level you have agreed to. If interest rates fall, so will decision. There are many different factors to consider. the rate you pay on your mortgage. However, the rate you pay will be higher than an equivalent discounted rate mortgage. For some individual’s it simply won’t be worth re-mortgaging and this could be due to any number of reasons – the most common ones are… Cap & Collar Mortgage With a cap and collar mortgage both a top and bottom limit is set for the interest • Your current mortgage deal is a very good one and you can’t get better rate. As you’re protected against interest rate rises above a certain point this is a elsewhere relatively safe option. The only drawback is that you’ll lose some of the potential • You are currently locked into you current mortgage deal and it would gains should interest rates drop. cost you too much to switch (see Step 2 for explanation on how you Cashback can work this out) Cashback mortgages provide a lump sum of cash immediately on completion of • You have a relatively small mortgage that the savings you would the mortgage. The amount is a calculation of a percentage of the overall mortgage; make by switching would be negligible. it can also be a set amount, usually in the region of 1- 4%. This can be very useful for first time buyers to put towards new furniture or moving costs. Typically these mortgages tend to be at the lender’s Standard Variable Rate. but for the rest of us – there could be great savings to be made. ethical mortgages By following this step-by-step process you will be in a much better position to make an informed decision as to whether you would benefit by re-mortgaging from If you take out any type of mortgage with The Co-operative Bank you can be your current deal and/or lender. assured that it's ethical. For every new mortgage we automatically make an annual contribution to Climate Care - an organisation dedicated to combating global warming. The money will be used to help fund one of the many projects around the step 1 – is your current deal still suitable? world which aim to offset up to 20% of the Carbon Dioxide (Co2) that the average home produces. The first step is to dig out the terms and conditions of your current mortgage. Ask yourself what type of deal do you currently have? Is it still what you need? We are the only UK Bank to have a published Ethical Policy and the principles run Remember there are many different types of mortgages out there and now you are deep throughout our business and touch virtually everything we do. As a customer thinking about re-mortgaging you may not need the same type as you did when you first you will have chance to influence how we operate, where we invest your funds and took out your mortgage. Opposite is a summary of the main types that are available. which causes we will actively support. 7 8 step 2 – find out about the products available Now that you know what types of mortgages there are and have a clearer idea as to which one/s are for you, Step 2 is to do some research of the products that different lenders are currently offering. Obviously the more you investigate, the more informed you will be but below are some of the issues to think about whilst you are shopping around… The first thing to consider is obviously the rate you would be charged with your new mortgage. If you find a product you are particularly interested in, get a quote either online or by calling the provider. All providers will be able to issue you with a ‘Key Facts Illustration’ document which will highlight all the costs associated with the product. So other than the rate, what other things should I consider? • Look out for lenders offering special incentives like free legal costs and free survey fees, these could help you to keep you costs low • How flexible is the product? 1. Can you overpay each month to reduce your mortgage if you have sufficient funds? 2. Can you underpay if you have a life-changing event? 3. Can you take a payment holiday? 4. Can you take the mortgage with you if you want to move house? • Is there an early repayment charge on your current mortgage deal? Would you have to pay a penalty for paying off your mortgage early? • Do you have to take out any conditional insurance as part of the mortgage? Buildings and Contents, Personal Insurance or Mortgage Payment Protection Insurance? If you have any other queries about any element of any particular mortgage, make sure you check it out. In the first instance speak to the provider concerned (but remember lenders will only give you advice about their own products) or secondly for a whole market view you could speak to an independent broker (please note many brokers don’t charge a fee but make sure you are clear before you start using their services). 9 10 step 3 – use our table to check your deal savings calculator So you’ve found a mortgage product that you think will save you hundreds of pounds? But how can you be sure? Your existing monthly mortgage payment A-£ The best way to work out how much you would save on the mortgage product Less your new monthly mortgage payment B - £ you’ve found is to work through the table opposite. This will take into account all the costs associated with your re-mortgage to see if you actually will save, and how Equals your total monthly savings C-£ much, if you were to re-mortgage. Number of months you have a special 1) Place your existing monthly mortgage payment amount into box A D- months discounted/fixed etc… rate 2) Place the monthly mortgage payment amount for your new mortgage into box B Equals your total savings over the E-£ 3) Subtract box B from box A and this will give you your total monthly period of discount savings in box C Less associated costs - including… 4) Place the number of months that you would have a special rate into box D. i.e. if your chosen product is a 3 year discounted rate this would be 3 X 12 Lenders arrangement fee £ months = 36 months Valuation fee £ 5) Multiply your total monthly savings, (box C) with the number of months you have the special rate for (box D) and you will calculate the total savings you can Mortgage indemnity premium £ expect during the time you have this special rate (box E). Broker’s fee £ 6) Next you need to take into account all the costs that you can expect to incur by re-mortgaging – such as arrangement fees, valuation fees etc… Add all these up Redemption penalty £ and place the total into box F. 7) If your chosen mortgage offers you any cash back or fees add this into box G. Legal fees £ 8) To work out the total savings you can expect to make over the period subtract Land reg fees £ all the costs associated with your mortgage (box F) from the savings you can expect over the period of your discount (box E) but also add on any cash back Ref charge from existing lender £ or fees you will have refunded (box G). Place the total in (box H). Total associated costs F-£ If the value in box H is positive, this is the value you could expect to save by re-mortgaging to your new product. If the value is negative you could expect to Add back any refunded costs such as lose money by re-mortgaging to this new product. cash back, legal fees, solicitor fees, G-£ valuation fees NB If you are in any doubt about the fees you will incur by switching from your current lender make sure you ask both your existing lender and the new Total savings expected over period H-£ lender for a breakdown of all the costs you can expect to pay. 11 12 step 4 – speak to your existing lender glossary about matching the deal Listed below are a few terms that you may come across on your home-buying journey. So you can save money by re-mortgaging and there are no hidden features on your new mortgage that will cause problems... what else should you consider? Annual Percentage Rate (APR) If you are considering moving from your existing mortgage provider, make sure you A standard way of expressing interest rates which allows you to compare the cost talk to them and let them know your plans. Sometimes the lender will be able to of different mortgages - including those from different lenders - on a 'like-for-like' match the deal you’ve seen so why not ask. basis. It takes into account costs such as fees for valuations, legal services and administration. The APR calculation is set by legislation and assumes the mortgage will run its full term. step 5 – plan ahead Arrears The amount a borrower is behind in their mortgage payments. How long should you allow to re-mortgage? Base Rate Tracker If you decide to re-mortgage, you should allow around 6 to 8 weeks for the process to be completed. Apply to your new lender, and arrange all your legal work and A rate of interest set above or below the Bank of England base rate is paid for a valuation to be carried out. period of time. Make sure that you don’t overlap the final payment on your existing mortgage with Buildings Insurance the first payment of your new mortgage otherwise you’ll be making two payments Protects the property against the financial effects of hazards such as fire, flood and in the same month! subsidence. It is a condition of taking a mortgage with The Co-operative Bank that you have adequate buildings insurance. Contact our sister company Co-operative Insurance, where you can have all your insurance needs covered. Capped Rate Mortgage As with all variable rate mortgages the rate follows the lender’s Standard variable to apply phone for more information or rate (SVR) up and down. The difference with this type of mortgage is that the rate is 0800 234 6761 guaranteed not to go above the level at which it is ‘capped’. Cashback Mortgages .uk/mortgages As an incentive, some lenders offer a lump sum with the mortgage. E.g. borrowing www.co-operativebank.co to 2pm Sat. ref: 40480 £70,000 with 6% cash back on completion, gives you £4,200. Early repayment n to Fri and 9am charges are usually attached to this type of product and you may be locked in for we are here 8am to 8pm Mo up to 7 years. CAM – Current Account Mortgage One loan account that brings all your finances, including your mortgage, loans and credit cards in a single account. 13 14 Completion Flexible The term used when the seller and buyer finally exchange money via their respective There are five main features to a Co-operative Bank mortgage: solicitors. The buyer becomes the legal owner of the property, and can move in. 1. Interest is calculated daily Conveyancing 2. Building an overpayment fund The process performed by a solicitor, or qualified conveyancer who deals with the 3. Underpayment and withdrawals details of home ownership transfer. 4. Payment holidays Daily Interest 5. Further advances The interest on your mortgage is calculated on a daily basis, which means that as soon as you make a capital payment your interest is reduced. Guarantor Mortgages Early Repayment Charges Any of The Co-operative Bank’s mortgages can be ‘guaranteed’ by a close family relative who promise to be answerable to the debt of the mortgage holder. If you want to sell your home or change to another lender, you’ll end up paying Guarantors will be subject to same lending assessment as the mortgage holder. back your loan early. Many mortgage lenders charge a penalty fee, particularly during any period of fixed, capped or discounted rate. Check it out in advance, Ground Rent so you know what you’re letting yourself in for. An annual fee paid for by the leasehold owner of a property to the freehold owner. Equity Holidays (from payments) The difference between the value of a property and the value of a mortgage. Even if you haven’t built up an overpayment fund, you could still stop paying your Negative equity is when the mortgage value is greater than the property value. mortgage altogether for up to 6 months on condition that you have been making Exchanging Contracts payments for at least 6 months. Interest does accumulate so you will have to make higher payments in the future to cover the payment holiday, if you want your end of The contract is the written agreement that sets out the terms between the buyer term date to remain the same. and the seller. When both parties exchange contracts – usually several weeks before completion – the deal becomes legally binding. Homebuyers’ Report Fixed Rate Mortgage A survey carried out by a professional surveyor from which you receive a report stating the condition of a property and whether or not any repairs need to be The amount repaid to the lender each month is fixed, regardless of the interest carried out. This service is less thorough than a full ‘structural survey’ (which might rates in the market place. It is common for lenders to offer rates fixed for a period be more useful for older properties), but provides reasonable detailed information of time. At the end of the fixed term or benefit period, the rate will normally convert at a slightly higher outlay than a basic valuation. to the SVR – Standard Variable Rate. Interest Only Mortgage You only pay the bank interest on the money you have borrowed. The capital itself is paid through a separate repayment vehicle such as an endowment or ISA. Insurance Insurance products include payment protection, life assurance and buildings and contents insurance. Recommended to protect you and your property. 15 16 Joint & Sole Income Multipliers Standard Variable Rate (SVR) These are used to calculate how much you can borrow based on your annual A rate of interest set by us which we charge for the money we lend on all of our earnings. E.g. for a joint mortgage up to 3.5 x joint income (or 4.5 primary income mortgages, usually after an introductory period on a fixed, discounted, tracker or and 1 x secondary) and for a sole mortgage 4.5 x sole income capped basis. Repayments on the SVR go up and down as the SVR changes. Loan to Value Stamp Duty The ratio of the mortgage amount to the value of the property. For example, if a A government tax you have to pay on the conveyance of your property if it costs loan of £100,000 on a property valued at £200,000, the LTV is 50%. more than £125,000. The amount due depends on the value of the property. Current arrangements for stamp duty are subject to government policy and Life Assurance – see Term Assurance may change in the future. Lump Sum Repayment Term The one-off payment of an amount of money into your overpayment pot, on top of The number of years over which you pay back your mortgage. a normal monthly payment. Term Assurance Mortgage Calculator A range of insurance products that can help repay a mortgage should An online tool that can be used to offer you a quick quote and to demonstrate the the person paying the mortgage die. flexible features of our mortgages. Decreasing Term Insurance Overpayment Fund The amount of life cover reduces as the mortgage is repaid. This is created when you increase your mortgage payments or pay a lump sum. You can withdraw from the fund or pay off your mortgage earlier. Level Term Assurance Payment Protection Insurance Covers the full amount of the mortgage throughout the term. Insurance that will give you cover for your monthly mortgage repayments should Underpayment you be unable to pay due to unemployment or sickness. One of the major benefits of our mortgages. Once you have built up Portability an overpayment fund, you can apply to reduce your monthly payments (underpayment) or withdraw some of the money at any time. If you move home you will be able to transfer your existing mortgage product onto a new mortgage for your new property if you stay with us. All of the Bank’s Variable Rate (SVR) mortgages are ‘portable’. Portability is always subject to Bank’s standard lending Many major lenders offer a variable rate mortgage based on a terms and conditions. Standard Variable Rate (SVR). Repayment Mortgage Valuation You make one monthly payment that covers both an amount towards repaying the A valuation is carried out to check if a property is suitable for the money borrowed and the interest being charged. lender to provide a loan on. See Interest Only Mortgage. 17 18 to find out more information notes about re-mortgaging or to apply for a mortgage, speak to a member of our mortgage team. to apply phone for more information or 0800 234 6761 .uk/mortgages www.co-operativebank.co to 2pm Sat. ref: 40480 n to Fri and 9am we are here 8am to 8pm Mo ...is that everything? YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE Calls may be monitored or recorded for security and training purposes. The Co-operative Bank is authorised and regulated by the Financial Services Authority. Registered Office: 19 The Co-operative Bank p.l.c., P.O. Box 101, 1 Balloon Street, Manchester M60 4EP. Registered in England and Wales no: 990937.
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