With somewhere in the region of 30-35% of all mortgages across the UK being remortgages, and with this being a great way to obtain funds or reduce your outgoings, we felt compelled to try and assist with some general remortgage advice and tips.
We should preface this by stating, for many this is their largest ever purchase/loan and please fully consider all of your options and seek out the advice of a mortgage broker.
The time it takes to Remortgage
How soon you can undertake this will ultimately depend on the type of mortgage you have in place. Other factors to consider are when you took out your current product (you may incur sizable early repayment changes potentially), the value of your home, rates available to you at the loan to value you require, recent/mid-term credit history and any changes on the horizon such as a new job or child.
Early Repayments and Other Factors
Early repayment charges will be payable on the majority of deals, even variable rate types of mortgage so always consult your mortgage offer document, check with your lender or broker. A standard variable rate (SVR) will commonly not carry these charges and if you are looking to remortgage quickly after purchasing (buy to let that required modernising for example) then this is likely to be the type of mortgage for you. Most other mortgages will have an early repayment charge, fixed rate, trackers, capped and discount (which even though variable you are fixed in for a period).
That may be a determining factor when deciding whether to remortgage as it can be quite a large cost, particularly if you still have a while remaining on your existing term. The closer you are to the term concluding the less the charge is likely to be and if within or circa three months from the finish, you can get things in place so your remortgage begins in conjunction with the end date of the current deal.
Reasons why you Should Remortgage
As we have alluded to above, there are some fantastic reasons for remortgaging, one of the strongest can be to try and save money. If you can remortgage or complete a product transfer (not borrow more) and find a preferential rate, then in theory your monthly payment should reduce. With mortgages being the sums they are, this could save you thousands even across just one year.
If your current deal is ending soon, your lender is likely to automatically transfer you to their SVR, this rate is generally always higher than if you were on a fixed rate for example so again, a good reason to consider remortgaging.
Has the value of your home increased significantly? You may obtain a better rate by moving into a lower loan versus the value by utilising the new found equity. Do you want to extend your house, undertake improvements, consolidate debt or invest in a second property? If you can release enough funds and keep the rate and repayments affordable, remortgaging can be a great way of releasing funds. Please note, the higher the loan to value, the higher the rate you pay in general as the lender sees more risk.
Maybe you would like to overpay but your current mortgage conditions will not allow this, again remortgaging could be beneficial in the longer term as you can pay off the loan in full before the scheduled end, therefore paying less interest. Many lenders will allow you to repay as much as 10% of the remaining balance within a year without incurring charges, again refer to your mortgage offer document or the key facts illustration of a new mortgage.
Why you shouldn’t remortgage your home
We should also point out that the reverse of any of these above reasons, could be as equally an import reason for not remortgaging in the immediate future.
As we mentioned above, early repayment charges (generally circa 1-5% of the loan amount) could make remortgaging not the best option or not viable at all.
Are your circumstances going to change? Possibly you have a new job pending, your going to become self employed or have a child due, taking on more borrowing could add to the pressure. However, a product transfer to a better rate and not an advance could help you.
Has the value of your home reduced or do you not have much equity in your home? You therefore, may not benefit from a better rate as your loan to value has moved to a less desirable level. Equally, any adverse credit on your report may mean remortgaging could take you away from lenders that traditionally provide the best rates. Invariably with lenders, the greater risk, the higher rate and impaired credit from late payments, defaults, CCJ’s, arrangements to pay or worse, will push you off the high street to lenders that charge more.
Ultimately, a remortgage should benefit you, either by reducing your payments from the effect of a lower rate, or to help you to do something such as improve your home. It should not be detrimental by making payments unaffordable and causing stress, consider the time it can take (circa one to three months) and fees involved. Always ask any questions to a professional and think through the new scenario you will embark on – the rate, payments and mortgage type, this is a long term and large commitment.