A remortgage is where you take out a new mortgage on a property you already own – either to replace your existing mortgage, or perhaps to borrow money against your property.
Around a third of all home loans made in the UK are actually remortgages. For most people, their mortgage is their biggest financial commitment. And it follows that streamlining the largest debt can produce the largest savings – sometimes £1,000s each year. If you’re the kind of person who shops around to get the cheapest television or mobile phone contract, then it would be favourable to use the same skills to save money on your mortgage.
Here are 8 reasons to consider a remortgage:
Your current deal is about to end.
Many of the best mortgages only last a short time – often two to five years – the typical length of time offered on a fixed rate, tracker or discount mortgage.
When it comes to an end, your lender will put you on its standard variable rate (SVR). It’s likely to be higher than your old interest rate and higher than the best buys available. If so, you want to be ready to remortgage to a cheaper rate. Start looking around 14 weeks before your rate ends.
You want a better rate.
If you are tied into an initial deal then you might have to pay an early repayment charge which can be huge, often 2-5% of your outstanding loan. Plus, there is usually a small exit fee (it might call it an ‘admin fee’ or a ‘deeds release fee’) when you repay any mortgage.
This doesn’t mean you shouldn’t consider it as the savings can be huge (especially if you have a large mortgage amount). You just need to do your sums before taking the plunge.
Your home’s value has gone up
If the value of the property has risen rapidly since you took out your mortgage, you may find you’re in a lower loan-to-value band and therefore eligible for much lower rates. Again, you need to do your sums but it’s definitely worth a look.
You’re worried about interest rates going up.
Whoa there! Before you panic, you need to check what is meant by rates going up. If it’s the Bank of England base rate that is predicted to go up, this may affect your mortgage payments directly, depending on the type of mortgage you have. If it’s the rates that new customers are being offered, then this doesn’t automatically mean yours will be affected.
You want to overpay & your lender won’t let you.
Perhaps you’ve had a pay rise or maybe you’ve inherited some money. You now want to pay extra but your current deal won’t let you or it will only let you make a small overpayment.
A remortgage will allow you to reduce the loan size and potentially get a cheaper rate as a result. But watch out for any early repayment charges or exit fees you face, and compare this to how much you’d save with the new, lower mortgage.
You want to switch from interest-only to repayment mortgage.
You may not actually need to remortgage to do this, your lender should be happy to make the change for you, but if not, there would be other options to change to an alternative lender.
You can even change part of the loan to capital repayment and leave some on your interest-only deal, which is particularly useful for anyone with an under performing endowment mortgage which is expected to result in a shortfall at the end of the term.
You want to borrow more.
Perhaps your current lender has said no to lending you extra money or the terms it’s offering aren’t very good. Remortgaging to a new lender might enable you to raise money cheaply on low rates. But remember to take all the fees and interest into account to see if it really is cheaper than other forms of borrowing.
The new lender will ask you what the extra money is for. Surprisingly, it is likely to be more comfortable with you borrowing the money for a new car than for business purposes. Not so surprisingly, it won’t want to lend you money to start a new business….
The most commonly acceptable reasons to raise money for home improvements and paying off other debts. Just be prepared for your lender to ask for evidence if you are borrowing a large amount, e.g. builder quotes, or proof of those debts.
You want a more flexible mortgage.
Changing jobs, going back into education, going travelling – whatever the reason, there are mortgages which will let you take payment holidays.
Or maybe you’ve been tempted by other types of mortgages which combine your savings or current accounts with your mortgage balance.
Whatever flexibility you want in a mortgage, chances are it’s out there. But remember flexible features may sometimes have a slightly higher interest rate. So it’s always beneficial to make sure you’re going to use them.