Getting a foot onto a property ladder seems very exciting, but it is not very easy. Finding a location, prices of the house, saving for deposit size, it requires so many things to consider before contacting a mortgage lender. Likewise, moving home is also not a cinch. The idea of moving house is good as long as you are shifting to a better place, you are starting a family, or you have found a job in other city.
Moving home may seem to be very exciting, but you must remember that the process of finding a mortgage for moving home is not going to be easier than taking out a mortgage as a first-time buyer. In fact, it can be more complex because you need to sell your existing house. Here are some tips you must bear in mind before taking out a mortgage for moving home.
The assessment of credit standing can be rigorous
Since you qualified for the mortgage last time, it does not mean that your lender will not evaluate your credit rating. When you port for an existing mortgage or take out a new mortgage, make sure that your credit rating is excellent. Mortgage lenders go through your credit report because it is likely that your personal circumstances may have changed. You are likely to fall into debt if you borrow despite your poor affordability and therefore lenders make sure that you will not face difficulty paying off the debt.
Consider your options
While moving home, you can either transfer your existing mortgage to a new property or apply for a new mortgage outright with either existing lender or a different lender. Before you make a decision, you should consider all methods. You can take guidance of your financial counsellor so that you do not face any problem.
Most of the mortgage deals come with porting feature, which means you can move your existing mortgage to your new property. In other words, you are taking out a new mortgage but at existing interest rates and terms. However, you will have to go through the application process including a credit check.
If you are moving a bigger house, you will have to borrow more money and therefore your lender will take into account your affordability. Porting in this situation can be difficult if the price of your existing house has not much gone up and you have been facing difficulty paying down your current mortgage.
Porting is the best option if you are planning to move a cheaper house. The size of your loan will reduce, which means your instalments will fall too. You will likely be able to buy your new house immediately if the value of your current property has increased.
- Remortgage with current lender
You can outright take out a new mortgage with your existing lender. However, you will have to pay off your existing mortgage. Since you are paying early, you will pay prepayment penalty. The fee can be up to 5% of the total value of your mortgage. Sometimes remortgaging with an existing lender can cost you more because of early payment fees. The closer the end of the term, the lower the early payment fees.
- Remortgage with a new lender
Remortgaging with a new lender is a good option when you are getting it at affordable interest rates. This will also cost you early payment fees because you will have to pay off your current mortgage. You will likely pay off valuation fees on your new mortgage deal. Make sure that you have calculated the entire cost before switching to a new mortgage lender.
Ways to cut down the cost
Whether you port or apply for a new mortgage deal outright, you need to look out for the ways to reduce cost as much as possible.
- If you are on a fixed-rate mortgage deal, you should wait unless you are put on the standard variable rate. Though such deal can be more expensive than fixed-rate, you will not have to pay penalty for overpayment.
- If the value of your new house is as same as your existing one, porting is a good option as you do not have to borrow more money and valuation fees.
The final word
Shop around and compare deals whether you port or remortgage. Sometimes a deal with reduced interest rates seemingly appears very affordable, but it can cost you more after adding in the cost of early payment and valuation fees.