Is Remortgaging a Good Idea?
, by Matt Stevens
Homeowners don’t stay with the same mortgage from start to finish because interest rates and deals change over time, which means it’s worth reviewing what’s available to ensure your mortgage is still competitive. Taking the time to check the market reduces the amount of interest you pay in turn, and so saves you a substantial sum over the years.
In this light, remortgaging offers a range of advantages, but it isn’t always the right choice for everyone since there are costs and considerations to weigh up alongside the potential benefits. This guide looks at when remortgaging is a good idea, as well as when it isn’t, so that you can make a decision based on your individual circumstances.
Why do people remortgage?
Their initial tie-in period is about to end
As your current mortgage deal approaches its end date, it’s important to plan ahead due to the fact that, once the initial fixed period finishes, lenders will automatically switch you onto their standard variable rate (SVR). These rates are higher, which leads to a noticeable increase in your monthly repayments.
To avoid paying more than necessary, you should be reviewing your mortgage options around three to six months in advance as this gives you time to secure a new, better rate, whether that’s with your existing lender through a product transfer or by going elsewhere.
They’re now in a lower LTV band
Your mortgage options improve significantly when your loan-to-value (LTV) has reduced from the time you first took out your loan. LTV compares the amount you’ve borrowed with the current value of your property and is shown as a percentage.
Over time, this figure falls as you repay your mortgage, and it drops even further if your home has increased in value. For instance, a mortgage that began at a higher LTV (90%) may now sit in a much lower bracket (75%), which implies access to more competitive rates.
They want to release equity
Some homeowners choose to remortgage to release equity they’ve built up in their property, as indicated by that LTV ratio we just mentioned. The money being freed up can be used for a range of purposes, such as home improvements, debt consolidation, or to fund the purchase of a second home. That said, because you’re borrowing more overall, the total interest you pay will go up.
As such, it’s worth considering alternatives like a personal loan for smaller sums. While the interest rate is generally higher and monthly repayments will cost more, the shorter repayment term means you pay less interest in the long run.
They need more flexibility
Flexibility is a big factor when choosing a mortgage, particularly if your financial circumstances aren’t always predictable. Some mortgage deals place limits on overpayments or don’t allow them at all, which is restrictive if you want to reduce your balance faster when you have spare cash.
This is especially helpful if your income fluctuates, such as if you’re self-employed or working on a zero-hours contract. Features like overpayment freedom or the choice to take a payment holiday during quieter periods make all the difference when it comes to managing your mortgage so as to be less stressful.
They wish to change mortgage type
Remortgaging is also a way to switch to a mortgage that better suits how you want to manage your borrowing. Although fixed-rate deals are popular, there are other mortgage types out there like tracker mortgages and discounted mortgages, which offer features that could align more closely with your financial plans or appetite for risk.
In some cases, homeowners might want to move away from an interest-only mortgage and start repaying the balance as well as the interest. Your current lender should be able to easily accommodate this change, but if they can’t then remortgaging to a new provider is the best route.
When isn’t remortgaging a good idea?
You’ll be charged
Remortgaging isn’t always the right move, particularly if the costs outweigh the prospective savings. Specifically, remortgaging early triggers an early repayment charge, which will be a sizeable percentage of your outstanding balance. As we touched on, it’s more cost-effective to wait until your initial deal has ended before switching.
On top of this, if you move to a new provider then they will charge for a valuation and legal work, however these costs are sometimes reduced or covered as part of a remortgage offer. If you’re staying with your current lender, these fees tend to be removed altogether, which you should bear in mind when coming to a decision.
Your circumstances have changed
Switching to a new lender means being assessed all over again, much like when you first took out your mortgage. Your income, credit score and overall financial position will be reviewed, which works either in your favour or against you.
If your situation has improved since you originally borrowed, perhaps your earnings are higher or your finances are more secure, you’ll qualify for more competitive rates. On the flipside, changes such as reduced income, bad credit, or a fall in your property’s value limits your options and results in less favourable terms.
If you want to get an idea of your current eligibility before you apply, you can use our free credit check tool (£14.99 per month after the free 7-day trial). Using it will help you to see any possible mistakes or fraudulent activity on your profile, so that you can deal with any problems right away. The trial and subscription can be cancelled at any time.
Should you remortgage?
Deciding whether to remortgage isn’t straightforward because everyone’s financial situation is different, and products vary widely, so what works well for one homeowner won't be right for another. It’s for this reason why professional advice is required. A mortgage broker helps you understand your options, identify suitable lenders, and time your move effectively.
At The Mortgage Genie, we focus on making the remortgaging process as simple for you as possible. Our team of expert advisers have access to a wide panel of lenders, including exclusive products, and will guide you through every step, handling the details so you don’t have to.
If you’re thinking of remortgaging, give us a call at 01915809890 today. And why find out how much you could save on repayments today by using our remortgage calculator?
The above blog has information contained within which was correct at the time of publication but is subject to change.
