Ten Remortgage Terms It Is Vital To Understand

A remortgage is when you change your mortgage to a new mortgage deal, either with you existing lender or with a new one. There is some jargon involved, and here we explain what it all means.

Valuation: A valuation is simply when a surveyor checks your property and confirms that its value is. This is important as the lender needs to ensure that the property is sufficient security for the loan.

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 GBP 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: It is the difference between the house's value and the amount remaining to be paid on the mortgage. Another way of putting it is that it is the money you have paid already (not including the mortgage interest) which under a remortgage you may be allowed to access/release to pay down unsecured debt or make home improvements etc.

Loan to Value: Many remortgage deals are only available up to a certain 'loan to value'. This is a term which relates to your mortgage as a percentage of the value of your home. As an example, if you had a mortgage of GBP 100,000 on a property worth GBP 200,000, your 'loan to value' would be 50 per cent. The lowest interest rates are normally available to people who are borrowing a low 'loan to value'.

Tracker Rate: A tracker rate remortgage deal will generally be linked to the Bank of England base rate. The rate will rise and fall in line with the Base rate and so your mortgage repayments will change as interest rates change.

Agreement in Principle: Once you have found a remortgage deal that you are interested in it is sensible to obtain an 'agreement in principle' from the lender concerned. An agreement in principle involves a lender taking some personal information and running a credit score to establish whether you are eligible for a remortgage deal. Whilst it is not a binding offer, it will help you establish whether you fit a lender's criteria.

Early Repayment Charges: 'Early repayment charges' are fees that you may have to pay to your current lender for repaying your mortgage with them. They generally only apply if you want to come out of a fixed or discounted rate early. And, any new remortgage deal that you take may also have early repayment charges for a set period.

Higher Lending Charge: If you want to borrow above a lenders Loan to Value limit (110% LTV for example), expect a 'Higher Lending Charge' to be included. This helps reassure and cover the bank or building society should the worse happen and they repossess the property, as they would then have to sell said property at a loss.

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: The vast majority of lenders will access your credit file when deciding whether to agree your remortgage. There are three main credit reference agencies in the UK and different lenders use different agencies. Equifax, Callcredit and Experian are the main agencies and they hold information about how you have managed credit such as loans, credit cards and mortgages in the past. They also hold information on whether you have missed any payments or whether you have any adverse credit such as a County Court Judgment.