For a lot of people in the UK, their mortgage is the biggest monthly expense, and likely the most expensive financial commitment they’ll ever undergo.
Therefore, when it comes to your home, you want to save as much money as possible, as often as you can. Remortgaging is often a solution to help save money on your mortgage repayments every month, but is it always the right option for everyone?
Well, in today’s blog, we’re going to look at remortgaging in detail, the reasons to remortgage, and whether or not you should personally remortgage your property.
What is Remortgaging?
Remortgaging is essentially where you take out another mortgage deal that replaces the one you already have. This can either be with the same lender you’re currently with or a completely different one, while staying in your current home.
An example of this could be:
- You buy a home for £200,000 with a £160,000 mortgage
- After a few years, you now owe £140,000
- Your fixed-rate deal ends, and the interest rate goes up
- You remortgage to a new deal (same or different lender)
- The new lender pays off the £140,000 balance
- You stay in the same home, but now on a better mortgage deal
Note: This is only for illustrative and educational purposes. Not every remortgage process looks exactly like this.
Reasons to Remortgage Your Home
The most common reason for someone to remortgage their property would be to save money, but there are also many other reasons. Some of the most common include:
#1 - You Want a Better Mortgage Interest Rate
This is one of the most common reasons to remortgage, along with the next. On your current interest rate, you may be thinking to yourself that you can find a better deal with a better interest rate.
The benefit of doing this is if you get a lower interest rate when remortgaging, it will lower your mortgage repayments each month and the total amount of interest paid over the life of your loan.
Be careful, though, as if you pull out of your mortgage deal early, you’ll likely need to pay an Early Repayment Charge (ERC), potentially 2-5% of your outstanding loan. It’s always best to speak to an expert to see whether the overall benefit of remortgaing is worth it in your specific scenario.
#2 - Your Current Mortgage Deal is Ending
You may be coming to the end of your current mortgage deal and are wondering whether it’s worth staying with your current lender or moving to a new one. After the current mortgage deal ends, you will be moved onto the Standard Variable Rate (SVR), which is typically much higher than other deals available.
Thus, it is worth negotiating with your current lender and looking for other options at least 6 months before your current mortgage deal ends. This gives you breathing room to make the most sensible decision for your personal circumstances.
#3 - Your Home’s Value Has Increased
If the price of your property has increased a lot in the time period you’ve been on your current mortgage deal, it would mean that you may likely fall into a different loan-to-value (LTV) band. This would mean you’re potentially eligible for better mortgage rates, and therefore, lower monthly repayments.
Please consider the Early Repayment Charges you could face, though, so make sure to do your research on what the overall cost of both options is. If you’re unsure, speak to a remortgaging expert today.
#4 - Overpayments Aren’t Allowed With Your Current Lender
A lot of lenders only allow you to repay a certain amount of your mortgage per year, whereas a new lender may allow you to make unlimited mortgage overpayments.
Typically, lenders who cap overpayments will look to let you overpay up to 10% of your outstanding mortgage balance without paying any additional charges. It’s always good to check with your lender before you consider them (especially if overpaying your mortgage is important to you).
#5 - You Want to Release Equity
This fits in line with the price of your property increasing, as sometimes, if your property price increases a lot during your current mortgage deal, this could increase the amount of equity you have in your home.
Therefore, when it comes to your home, you want to save as much money as possible, as often as you can. Remortgaging is often a solution to help save money on your mortgage repayments every month, but is it always the right option for everyone?
If this has changed dramatically in the time you’ve had the home, remortgaging could help you get access to that equity pot you’ve built up to fund things like a home move, home improvements, holidays, an emergency fund, and many other things.
#6 - You Believe Interest Rates Will Go Up
You may also think that interest rates will go up soon, and are worried that if you leave it too late to remortgage, you will have a much higher mortgage rate. This ultimately leads to higher monthly expenditure, so it may be in your best interest to lock in a mortgage deal before they go up.
Now, of course, making predictions can be very difficult, but if it’s very obvious that mortgage interest rates are going up, this could save you a lot of money. It’s always best to talk to a mortgage broker/advisor to see if this is the best choice for your personal circumstances.
Reasons Not to Remortgage Your Home
On one hand, remortgaging can be extremely beneficial, but in some cases, there are reasons not to remortgage your home. Let’s go through some common reasons:
#1 - The Early Repayment Charge is Huge
If the early repayment charge is bigger than what the savings would be on a remortgage, then it isn’t worth it, in this case. If you’re unsure on how to work this out, Money Saving Expert have a brilliant calculator to see if it’s worth ditching your current mortgage.
If you still require some guidance, it’s definitely worth speaking to an expert, as this could be the difference between hundreds, if not thousands of pounds.
#2 - Your Home Has Gone Down in Value
If your home has gone down in value over the period of your current mortgage deal, then you’re essentially losing equity in your own home, meaning you’ll end up paying more over your lifetime.
This is sometimes impossible to predict or deal with, but sometimes doing nothing is better than tinkering with it. If you remortgaged, you will struggle to find a new deal, as lenders will typically require a certain loan-to-value (LTV) ratio to offer competitive rates.
#3 - You’re Already On a Great Mortgage Interest Rate
You may not know it, or feel like it, but you may already be on a great, competitive mortgage rate. The best way to find out if you’re already getting a good mortgage rate is to compare it using something like a mortgage best buy tool.
#4 - You Hardly Have Any Mortgage Debt Left
Although this is more unlikely, you may be in a situation where you don’t have much mortgage debt left to pay. In this case, it may not be worth remortgaging once you’ve reached a certain amount left on your mortgage.
Sometimes, the smaller your mortgage, the worse the fees/charges can be compared to changing interest rates, so it’s definitely worth looking at, but just make sure to understand the total cost of both over the remainder of your mortgage.
#5 - Your Financial Situation is Different Now
If you’ve recently become a business owner, freelance, or you’re self-employed, this can change how lenders see your ability to pay back your mortgage. Most of the time, if your income is less predictable, then you’re likely to be worse off on your mortgage deal.
Thus, if you still have your mortgage term from when you were employed, most of the time, it’ll probably be better to wait it out. If you still want to check, however, it’s definitely worth talking to a mortgage specialist.
Should You Remortgage?
Overall, whether or not you should remortgage totally depends on your financial situation and personal circumstances. In some cases, remortgaging can save you £1000s of pounds, but for others, it actually may affect your finances.
So, if you want to speak to someone who can help you understand the pros and cons specifically for you, reach out to our team here at Bell Financial Solutions.
Call us on 0161 791 4757 or use our online contact form and we’ll get back to you promptly!
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