Reasons to remortgage: Is now the right time for you?

Is now the right time to remortgage?

Remortgaging just means switching your mortgage from your current lender to a new one. People do this for lots of reasons: to get a lower rate, reduce their monthly payments, borrow more for a major expense (cars, holidays, etc…) or release some of the equity in their home.

If you’re not sure whether now is the right moment, you’re definitely not alone. A mortgage adviser can talk things through and help you feel a bit more confident about your next step.

Understanding remortgaging

What does it mean to remortgage?

Remortgaging means moving your mortgage to a different lender while staying in the same home. You take out a new mortgage, use it to repay your current one, and then make your payments to the new lender instead.

This is different from a mortgage renewal or product transfer, where you stay with your existing lender but switch to a new deal.

Most people remortgage when their fixed rate deal ends, but you can remortgage at other times too if it suits your plans.

Remortgage jargon explained

A few helpful terms to know:

• Fixed rate mortgage: Your interest rate stays the same for a set period.

• Tracker rate: Your rate moves in line with another rate, usually the Bank of England base rate.

• SVR: Your lender’s standard variable rate, this isoften higher and can change.

• Early repayment charge: A fee you may pay if you leave your current deal early.

• Loan to value (LTV): The percentage of your home’s value you borrow. Lower LTV often means better rates.

• Equity: The part of your home you own outright.

• Product transfer: A new deal with your current lender.

• Term: The number of years you’ll take to repay your mortgage.

Benefits of remortgaging

Homeowners remortgage for lots of reasons, including to:

• Save money

• Borrow more

• Change mortgage features

Remortgaging to save money

Lowering your monthly payments is one of the biggest reasons people remortgage. When your fixed deal ends, your lender usually moves you onto its standard variable rate (SVR). That rate tends to be quite a bit higher. Switching to a new deal with a lower interest rate can bring your payments down and give you a bit more breathing room each month.

It’s worth looking beyond the headline rate, though. A deal that looks cheaper at first glance might not save you money once you add in arrangement fees and other costs. An adviser can help you compare everything side by side so you’re not caught out.

If your home has gone up in value since you last took out your mortgage, your loan to value (LTV) will have dropped. A lower LTV often unlocks better interest rates, which can make remortgaging even more worthwhile.

You don’t have to work all this out on your own. A mortgage adviser can run the numbers for you and help you find the deal that fits your situation.

Use our remortgage calculator to see how you might be able to save money.

Remortgaging to borrow more money

Remortgaging to borrow more is often called ‘releasing equity’. Equity is just the portion of your home you already own.

You can work out your equity like this:

• Equity = property value – amount you owe on your mortgage

Releasing equity means borrowing more than you currently owe. Your old mortgage is replaced with a new, slightly larger one, and the difference comes back to you as a lump sum.

People release equity for lots of reasons, including:

• Sorting out debts

• Investment opportunities

• Planning your family’s future

Sorting out debts

Some homeowners remortgage to bring higher interest debts, like credit cards or personal loans, into their mortgage. This can make your monthly payments easier to manage and put all your borrowing in one place. This is sometimes called debt consolidation.

Debt consolidation can help in some situations, but it isn’t always the cheapest option. You’ll be turning unsecured debt into borrowing secured against your home, and you may pay interest on it for much longer.

Investment opportunities

You may want to release equity to fund an investment, such as buying another property. For example, some homeowners use equity to help fund a buy to let.

Just remember that borrowing more comes with extra costs and risks. You’ll need to be confident you can afford the higher mortgage payments and understand the risks of the investment itself.

Planning your family’s future

What you want to do with your money can change over time. You might want to support your kids at university, help an older child with a house deposit or wedding, or pay for home improvements.

Borrowing more will increase your mortgage balance, which means higher repayments or a longer term and possibly more interest overall.

Doing the sums

If you’re remortgaging to borrow money for debts, investments or family plans, it’s important to crunch the numbers first. A mortgage adviser can help you work everything out.

Speak to a mortgage adviser today

Change mortgage features

You might remortgage because your needs have changed and you want a mortgage with features that let you do more things.

For example, you may want a mortgage that lets you make overpayments, helping you pay off your mortgage sooner and reduce the interest you pay.

An adviser can help you explore what’s available and whether switching lender makes sense.

When to consider remortgaging

Your current mortgage situation

The most common reason to remortgage is because you’ve reached the end of your fixed rate deal. Once it ends, you move onto your lender’s SVR, which is usually more expensive.

Don’t wait until the day your deal ends. Many lenders let you secure a new deal up to six months early and if a better deal appears in the meantime, you can usually switch to that.

If you’re on a tracker mortgage, your payments can rise when interest rates go up. You might decide to remortgage to a fixed rate deal instead, giving you a clearer view of what your monthly payments will be. You might pay more if rates fall, so it’s worth weighing up the cost and peace of mind (and we could all do with a bit more of that!).

Changes in financial circumstances

Your finances may look very different from when you first took out your mortgage. You might earn more, have paid down a good chunk of your mortgage or built up plenty of equity.

On the other hand, your income might have dropped, your outgoings may have grown, or life events, babies, job changes, cohabiting or separation, may have shifted things around.

When you remortgage, you can also choose a longer or shorter mortgage term:

• Longer term: lowers your monthly payments but means paying more interest overall.

• Shorter term: raises your monthly payments but helps you clear the mortgage faster and reduces the total interest you pay.

Remortgaging: What you need to think about

Remortgaging can save you money, but there are a few things to think about.

Fees and costs

Before switching, check all the costs involved. These can include:

• Arrangement or product fees

• Valuation fees

• Legal fees

• Broker fees

Some mortgages let you add fees to the loan, but remember you’ll pay interest on them for the whole term.

The best deal isn’t always the one with the lowest interest rate. Look at the total cost over the deal period. Our mortgage advisers are all maths wizzes, they can work this out for you while you chill.

Early repayment charges

If you’re still within your current deal, leaving early may mean you have to pay an early repayment charge (ERC). This can be a significant cost and could wipe out any savings.

It often makes sense to wait until your deal is ending, when you can usually remortgage without paying an ERC. But check your terms and speak to an adviser. You may be able to secure a new deal early and time the switch to avoid the charge.

Understanding your credit score

Your credit history affects the deals available to you. Before applying, check your credit reports and make sure everything is accurate.

If you’ve missed payments or taken on more debt since your current mortgage was approved, you may have fewer options, but try not to worry. There are still mortgages for people with not-so-perfect credit, although rates and choice may differ.