A remortgage is where you take out a new mortgage on a property you already own – either to replace your existing mortgage or to borrow against your property.
Around a third of home loans made in the UK are mortgages.
For most of you, your mortgage is the biggest financial commitment you will make in your lifetime. This means that streamlining your largest debt can produce the biggest savings, If you’re the kind of person who will shop around for the best deals on electrical appliances, food or clothes then you are missing a trick if you are not shopping around for the best mortgage deal. Potential savings from remortgaging can be huge and can amount to £1000’s over the years.
There are Pros and Cons to remortgaging and it won’t be for everyone.
Why should I remortgage?
Your current deal is about to end.
For most this would be the main reason to remortgage, many of the best deals only last for a short period of time, typically 2 to 5 years. This maybe a fixed, tracker or discount mortgage.
Once your current deal comes to an end the lender will put you on their standard variable rate, which would be higher than the interest on your current rate and likely to be more than the current best deals. If so, you want to start looking into a remortgage about 3 months before the rate ends, just be aware there maybe penalties switching lender before the rate end.
You want a better rate
If you are tied into an initial deal then you usually will have to pay an early repayment charge, these can be considerable amounts around 2-5% of the outstanding loan, plus exit fees.
Even though the exit penalties maybe high the overall potential savings by remortgaging to a lower rate may outweigh these penalty fees. It just requires some calculations prior to making the decision.
Your house value has increased
If the value of the property has increased since you took out the mortgage, you may find you are now in a lower ‘loan to value’ band, and therefor eligible for much lower rates.
You want to borrow more
You may want to borrow money to do home improvements but your current lender may have said no to lending extra money or the terms its offering aren’t very good. Remortgaging to a new lender might allow you to raise more money on cheaper rates.
Just be prepared for your lender to ask for evidence if you are asking to borrow large amounts, e.g builder quotes
There are other reasons to consider a remortgage such as you want a more flexible mortgage to make overpayments or maybe to change from interest only to repayment but just remember your current lender might not always have the best deals and there are many providers out there not just the high street banks so it would be wise to either do some research or speak to us who can provide mortgage advice and solutions from across the whole market.
Why I shouldn’t remortgage?
Your mortgage debt is small
Once your loan falls below a certain amount, say around £50,000 , it may not be worth switching lenders as if the fees are high there may be no or little savings.
Your early repayment charge is large
As mentioned earlier your current deal may have an early repayment charge, this may mean that by switching lender you receive a hefty penalty. These penalty charges will usually come off once you go over the deal end so it may be worth waiting a little longer. Always do the sums to see if it would be beneficial to switch or not.
The value of your home has dropped
If since purchasing your property the value of your home has decreased the amount you owe is now a bigger proportion. This is called ‘negative equity’ where your debt is higher than the value of the property. The only thing you can do in this situation is sit tight, make your payments, over payments if allowed and wait for property prices to increase- this is a situation that many people in the UK are facing.
You’ve had credit problems since taking out your last mortgage
Since the credit crunch, lender have become far more picky in who they will lend to. The regulators now require them to check affordability in today’s rates and if there was to be an increase in interest rates. Lenders now require a lot of information regarding your outgoings and repayment and debt history. It might only take one recent missed payment to your credit card, loan, utility bill or even phone bill to cause a problem.
If you have been considering a remortgage or not even thought about it before but now think this might be an option give us a call to see if a remortgage is suitable for you.