No one cares much of what is happening in the world of remortgage lending until it comes time to try and secure a remortgage deal. Then it is like diving into cold water when a homeowner realizes that there seems to be a whole different language being spoken. It is a shock to the mind to try and figure out what everyone is talking about. To help ease the apprehension that often develops for a homeowner when they aren’t familiar with the often used terms in the remortgage arena we have listed and defined the most common remortgage words or phrases:
• Administration Fee – This is the fee that some lenders will assess to offset the costs they incur when administrating the remortgage.
• Arrangement Fee – This is the term often used to define the fee a lender will charge for setting up the remortgage loan for the homeowner.
• Base Rate or Standard Base Rate – This is the base value for which most interest rates are set by lenders for mortgages. Most will use the base rate as a starting benchmark in which to determine what value an interest rate will be. They will add a certain percentage onto the base rate set by the Bank of England. This is important for homeowners that secure a tracker or variable rate remortgage. Their tracker or variable rate will fluctuate when the base rate rises or falls. This will mean an increase in the monthly mortgage payment or a decrease according to how the base interest rate moves.
• Credit Reference Agency – This is the reporting agency that has gathered information on how you repay and handle credit offered by other lenders in your past. Lenders use this information to determine if you are a good or bad risk to do business with for a remortgage. The amount of risk or lack of it will determine the interest rate offered as well. The most common credit reference agencies used in the UK are Experian, Equifax and Call Credit.
• Early Repayment Charge or Early Redemption Penalty – Surprisingly there can be a penalty fee or charge to a homeowner for paying off a loan early. This fee is to offset the loss that the lender will have because the homeowner did not pay interest on the mortgage for a longer period. The loss in the interest that would have been realized is offset by a fee imposed by the lender.
• Essential Repairs – If a lender is going to give you a loan based on the value of your home then you want your home to be in good condition. In addition, the lender wants to make sure they are lending money on a worthy property. If the home is in need of repairs a homeowner may be required by the lender to make certain essential repairs to the property before the remortgage is granted.
• Equity Release Remortgage – An equity release remortgage is the term used to describe a remortgage that has the purpose of supplying cash to the homeowner. In essence, the homeowner is taking some or all of the equity that has been paid into the property and taking it back. This does of course mean the homeowner owns less of the home than they did before the remortgage. They are taking the mortgage level back to a higher percentage than what it was previously, thus releasing the built up equity. The homeowner can sometimes choose to have the cash from the equity release to come to them either monthly but the majority of homeowners get the released equity in a lump sum of cash. This money can be used for whatever the homeowner chooses, whether it is improvement to the property, debt repayment, a vacation or an investment opportunity.
• Fixed Rate Remortgage – A fixed rate remortgage is the safest remortgage when obtained by a homeowner with a set budget. Fixed rates do not fluctuate with the rise or fall of the Bank’s standard base rate. The amount of the monthly remortgage payment will be the same month to month for the duration of the term of the remortgage deal.
• Flexible Rate Remortgage – A flexible rate remortgage allows the homeowner to choose to underpay or to overpay on the set monthly remortgage repayment amount. This can occur without penalty from the lender.
• Remortgage Term – The term of the remortgage deal is the set time or term that the deal will maintain the agreement from the lender on the level of the interest rate. The term is a set amount of years typically. If a fixed rate has a 2 year term then that means the interest rate will be set for a particular level for 2 years and after that term is over then the lender moves the remortgage over to their standard variable rate. This is a rate set by the lender that can fluctuate up or down according to their discretion outside any rises or declines in the Bank of England’s standard base rate.
