Remortgaging – when and how to remortgage your home
Once you have bought a home, it can be all too easy to forget about your mortgage and focus on other priorities. But often remortgaging can save you money and reduce your monthly payments. There are lots of reasons to shop around for a new deal.
What is remortgaging?
Remortgaging is essentially shopping around for a new mortgage. You might decide to stay with your current mortgage provider or move to a new lender.
There are many potential reasons to find a new mortgage.
When is it a good time to remortgage?
Typical reasons to remortgage include:
- Your current deal – a two year fixed rate, for example – is about to end.
- You’re worried about interest rates going up. If you switch to a fixed rate mortgage you can ‘lock in’ your payments at the current rate.
- You want to switch from an interest-only to a repayment mortgage – or the other way around.
- Interest rates have reduced, by remortgaging you should get a better rate.
- The value of your home has gone up…a lot. You will now have a better loan-to-value ratio so you should get better rates
- You want to borrow more – to fund home improvements perhaps, or help pay off your debts.
- You want a more flexible mortgage, perhaps to overpay by an amount greater than your current lender allows.
When is remortgaging not a good idea?
There are some situations when remortgaging isn’t recommended:
Your financial situation has changed
If your income has reduced you might find it difficult to get a mortgage deal as good as your current one. However, your current lender will often offer a suite of products when your deal ends without asking to re-visit income and expenditure
The outstanding mortgage debt is small
If you only have a few thousand pounds to go before you pay off your mortgage, changing deals will have little effect on your payments. You could remortgage to borrow more money, though.
Your current deal has a high early repayment charge
Some mortgages charge you an exit fee if you decide to end the deal early. This can be up to 5% of the mortgage balance – so it could be a lot of money. In these cases, it’s usually worth waiting until the end of the initial mortgage deal before considering your options.
You don’t have much equity
If you haven’t paid off much of your mortgage or the property value has fallen, you will have a high loan-to-value, which means you’ll get less competitive deals. It might be better to stick with your current mortgage.
You’ve had credit problems
If your credit rating is likely to have worsened since you took out your mortgage, it could be difficult to get a better deal.
You’re already on a good rate
If you have an excellent rate on your current mortgage, whether it’s a variable or fixed rate deal, it might not be in your best interest to re-mortgage unless you have other requirements that you need fulfilling as part of the review.
What happens if I don’t remortgage after my deal expires?
It’s important to look at switching mortgages when nearing the end of a fixed rate mortgage term or a variable deal that incorporated a discount for a set period of time. Fixed deals usually last two to five years, and when they end you move to the lender’s standard variable rate. This rate is usually more expensive and not very competitive.
You could ask your current lender if they can offer you a better deal, or move to a new provider. Moving to a new lender will require a full application and have a credit score check.
What can I do to improve my chances of a good remortgage?
If the overall mortgage debt has reduced since you signed up with your lender, and your financial situation is broadly the same, you shouldn’t have any problems getting a good remortgage.
Make sure you have all the documents you need ready. You’ll need up to date ID, such as a passport and driving licence. It will also help to collect recent payslips (accounts if self-employed), bank statements, utility bills, and your P60.
Are there fees for remortgaging?
Most mortgage lenders require an Arrangement Fee for a new product, be that with your existing lender or a new one. It is usually a fixed sum or a percentage of the total loan. You can pay this upfront or add the cost to your mortgage which would result in a small additional cost to the monthly payment.
Legal Fees are common too, although they’re free with some lenders when you use their conveyancing team. You can use a mortgage calculator to work out the overall cost of remortgaging. Consider both the monthly payments under the new deal and the total fees chargeable to make your decision.
How can a Mortgage Broker help with a remortgage?
Remortgaging involves a lot of research and consideration. Mortgage brokers are expert professionals – it’s their job to guide you. We do all the legwork on your behalf to find a competitive deal that suits your individual circumstances.
Purely Financial based is an appointed representative of PRIMIS Mortgage Network. PRIMIS Mortgage Network is a trading style of Personal Touch Financial Services Ltd which is authorised and regulated by the Financial Conduct Authority and are registered in England, we’re trusted advisors to clients in all walks of life.