You don’t have to stick with the same mortgage for the entire period of the loan. In fact, doing so could cost you thousands of pounds extra over the repayment period.
This short guide will provide you with more information on the ins and outs of remortgaging – including the benefits you could reap from it.
What is remortgaging?
Remortgaging is when homeowners change their mortgage deal or need to take a larger loan to release more money from the equity of their home.
Many mortgages have a fixed or introductory low rate that ends after a few years. Changing deals after this time period helps to keep the costs of a mortgage down.
Homeowners may also want to release the equity in their home for a larger sum than the original mortgage.
Who should consider remortgaging their home?
Remortgaging is an option for homeowners who have completed the introductory period on their existing mortgage deal and are now on their provider’s standard variable rate.
It’s also a good option if you want to invest in your property to add to the resale value. For example, an extension or loft conversion can add up to 20% on the sale price of a property, so it may make financial sense to remortgage to cover the cost of the work.
Four benefits to remortgaging
Now you know the 'what' and the 'who' of remortgaging, let's take a look at several benefits that explain the 'why'.
1. Reduce your mortgage costs
Once your introductory rate is over, you’ll pay a higher interest rate on your mortgage. This could add thousands of pounds in interest over the term of the loan.
2. Free up your capital
Lower payments, thanks to more favourable interest rates on a new deal, mean you’ll have more disposable capital from your monthly income.
Releasing cash in the form of a larger loan amount also means you can access additional equity from your home to pay for big expenses such as home improvements.
3. Adapt to life events
Your current mortgage deal may not offer the flexibility you now need. For example, if your income has decreased or increased since your original deal, you may want to change your monthly repayments or loan term.
4. Pay off your mortgage sooner
If you’ve received a windfall, such as an inheritance, you could be in a position to make an overpayment or even completely pay off your mortgage.
Remortgaging could save you thousands of pounds in early repayment charges and exit fees. Paying it off in less time will also save you on the interest charged over time.
Before you remortgage...
Remortgaging can take up to three months to complete once you’ve decided to go for it.
Just as with your initial mortgage application, your credit rating may be affected when you apply for a new mortgage deal. You may also be rejected for a new deal if your circumstances have changed, such as a lower household income than you’ve had before.
There are also fees and charges associated with switching mortgage deals, which could offset any savings from a better interest rate.
Before you decide to remortgage your home, speak to an adviser to make sure it’s the right option for your personal financial circumstances and needs.
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.