Remortgaging is a term that gets thrown around a lot when discussing housing.
While it’s a fairly common practice, there are still plenty of homeowners who either don’t understand it or know how it could benefit them.
In layman’s terms, remortgaging is when you take out a new deal on your existing property to either replace the mortgage you already have or to borrow a sizeable amount of money against your home.
For most people, their mortgage is their most significant financial commitment and may be tentative about changing it. However, if you know what you’re doing (or are thinking about getting mortgage advice from a professional like an online mortgage broker), you can save money and find yourself a better deal all by switching your mortgage at the right time.
Reasons to Remortgage
There are plenty of reasons to remortgage, some more specific than others. We’d be here all day if we listed them all, so we’re going to cover the most popular ones.
Your Current Deal is About to End
Even the best mortgage deals only last a short time, usually only 2-5 years, and then you’ll be transferred to the lender’s standard variable rate. This will probably be a lot higher than your current rate, so this makes the perfect time to remortgage. Be timely though! Start looking at least 14 weeks before your rate comes to an end.
The Value of Your Home has Increased
Properties can rise in value for several reasons, but if yours has drastically increased, then remortgaging could be a good idea. Shopping around, you may find a lower loan-to-value band and therefore be eligible for a lower rate. Make sure to check first, but it’s always a good idea to keep tabs on the value of your home.
You Want a Better Rate
It’s one of the most straightforward reasons, but a pertinent one. Some deals may have an early repayment charge or an exit fee (sometimes 2-5% of the original loan), but it’s always worth checking around for other deals. The potential savings could be huge!
You’re Worried About Rising Interest Rates
If you have a tracker mortgage and the Bank of England base rate is predicted to rise, it could be the right time to look for a new deal. However, make sure that an increasing rate would affect your mortgage specifically. There’s no use worrying over nothing and remortgaging is usually very situation dependent.
You Want to Overpay, But Your Lender Won’t Allow It
People can come into money for all kinds of reasons and paying off a mortgage is something many do when in that situation. However, some lenders don’t allow this, or only let people make small overpayments. If you remortgage, you’ll be able to reduce the loan size and get a cheaper rate. Just make sure to keep an eye out for any early repayment charges or exit fees as those could throw a spanner in the works.
You Want to Borrow More
Not all lenders will let you take out extra money on your deal, but remortgaging could let you find a new lender who’ll let you raise money on a lower rate. Just make sure to check if this is the best course of action for you and a cheaper move than other forms of borrowing.
It’s likely that the new lender will ask you what the money is for. You must be honest, or you will end up in trouble down the road. The most common reasons involve getting a better return on investment later on, like home improvements or consolidating other debts. Just make sure you have evidence of these ventures as the lender may ask to see them.
Should I Remortgage?
However, you must be sure that this is the right course of action for you. While remortgaging can be an excellent option for many, it is heavily dependent on your circumstances as well as the amount of time you have left on your mortgage. Like all loans, they work best for certain people and plenty of people want to remortgage when there are other, simpler solutions. Here are some scenarios when you shouldn’t remortgage
The Value of Your home has Decreased
If the value of your house has gone down, you’ll usually find yourself paying back a more significant proportion. Unfortunately, this means you are a victim of shrinking equity which can sometimes leave you with a debt bigger than the value of the property. This is NOT the time to remortgage. In this situation, all you can do is make overpayments if you can and wait for prices in your area to increase.
Your Mortgage Debt is Small
Once your mortgage has fallen below £50,000, it isn’t a good idea to switch lenders as you aren’t likely to make any significant savings.
Your Credit Score Has Dropped
If your credit score has taken a hit since taking out your current mortgage, you aren’t likely to be accepted for a new deal. Lenders are incredibly selective when it comes to approving mortgages and remortgaging your property won’t change that fact. If you want to get a new deal, make sure to check your score. If it’s poor, do some research into what you can do to raise it before you think about applying.
Remortgaging can be a scary idea, but it could really benefit your situation. Almost one-third of all mortgages made in the UK are remortgages, so plenty of people have already realised the benefits. Do some research into your current mortgage deal to see if switching to a new lender could save you some money in the long run. There are always tools like online mortgage calculators and physical mortgage brokers that can help you if you’re unsure.
