No doubt you will have heard the phrase “Remortgage” but what exactly is it? To put it simply it’s the process you take out a new mortgage on a property you already own, either to replace your present mortgage or to borrow money against your property. Almost a 3rd of all home loans in the UK are remortgages. But should you do it and is it suitable for your requirements. Below we cover some basics so you can make an informed decision.
For most of us a mortgage is our biggest debt, the biggest financial commitment we make. It stands to reason that we could potentially save thousands from streamlining this debt alone. Shopping around to get the best deal for your new mortgage could be the biggest saving you make. There are many pros and cons though in doing this so we shall go through these below and hopefully we can help you. Remember here at Mortgage Squared we are experts in remortgaging so we can help you find and get a better deal.
So why should you remortgage?
Your present mortgage deal is about to end. For most of us we only get the best rates for a set period at the start of the mortgage, usually between 2 to 5 years. When this ends you usually go onto the standard rate by your lender which is likely to be higher then your present rate. Ideally you should start looking 3 months before your present agreed rate ends to give you enough time to find a new better rate, we can help with this.
If the value of your home has increased a lot since you took out your existing mortgage then you could be in a better loan to value band so you would be entitled to a lower rate. This alone could mean you pay less each month then you presently do.
You are concerned interest rates are about to go up. If this is the case you need to proceed carefully as just because the Bank of England increases its base rate of interest this does not mean your rate will be affected, especially if you are still in your agreed reduced interest rate.
You want to overpay your mortgage but your lender won’t let you. If this is the case then it could be a good idea to remortgage to a new more flexible lender.
If you want to switch from interest only to repayment then you will need to remortgage too. If your stuck in an interest only mortgage then you won’t be allowed to suddenly start repayments. This means remortgaging is your only option.
You might want to borrow more and your present lender has declined this or offered you not very good terms. New lenders are more likely to lend you more money if its for a car then business purposes.
You might want a more flexible mortgage then the one you are on, in which case remortgaging may be a good idea. You might want a payment holiday or similar and your present one doesn’t allow this.
Why should you refrain from remortgaging?
If your mortgage debt is quite small like under £50,000 then it might not be worth remortgaging as the savings will be hardly worth it. This combined with any fees your present lender will demand if you leave may make it not worth your while in remortgaging and moving lenders.
If your early repayment charge is large and some lenders are known for this then maybe it’s not worth your while. This is one piece of information you should always check at the start before you accept any mortgage offer. Some lenders have really high penalty fees for leaving your mortgage early.
If your financial circumstances have changed since you applied for your original mortgage then you may find it hard to remortgage, maybe one of you doesn’t work now or is self employed. Maybe your income has dropped, if so then you might not get a better rate even if you move lenders then the one you are on now.
If your property value has dropped since you took out your existing mortgage it may be worthwhile hanging on. If it has this means your loan to value is now in a worst state then when you bought the house so you might not be in as good a position to get better rates. You could even be in negative equity if your property value has dropped quite a lot.
If you have had credit problems since you last took out a mortgage such as defaults, CCJ’s or arrears then you might not get a good rate if any offers at all until you improve your credit rating. We always encourage you to monitor your credit report and fix any issue you may find. This will help you in the long run should you come to remortgage at a later date.
Lastly if you are already on a great rate then there is really no need to remortgage, with this comes hassle and stress and you might need to find a lump sum to pay off penalty fees to your existing lender. If the saving is hundreds a month then yes it’s worth doing but if we are talking a few pounds then it’s best to stay with your present mortgage lender and build up your credit rating for the time you do come to remortgage.