For most of us our mortgage is our single biggest outgoing. So, it makes sense to occasionally review your options to make sure you are getting the best from it. In many cases that means looking at a remortgage. So, what does that actually mean, and what should you be thinking about.?
There are many reasons to consider remortgaging whether you;
- Have a current deal coming to an end
- Want to buy another property whilst keeping your current one
- Want to do some significant home improvements
- Want to lower your repayments
This article covers the basics if you’re looking at remortgaging as an option.
What exactly is remortgaging?
When we talk about remortgaging what we usually mean is either moving your current mortgage commitment to another provider or looking to borrow money against property you currently own outright.
Firstly, before we discuss anything else, I want to be clear about the importance of your mortgage. They are not something to be taken lightly and it is absolutely vital that you always understand what any changes mean. When you take out a mortgage it is one of the longest-term commitments you will ever make and will play a part in your life for years to come. Remortgaging then, is a very serious decision. However, it is not one you should shy away from because, as long as you are doing it for the right reasons, it can be a good thing for you financially.
So, is remortgaging right for you and should you consider it?
Why should I remortgage?
Remortgaging can have it’s advantages and disadvantages so it’s a good idea to consider all of your options before deciding.
That being said, remortgaging tends to be a straightforward process as there carries less risk to the lender. You’re likely to have a good range of lenders as the majority of them are happy to take customers on who are remortgaging.
As we’ve said, there are a number of reasons you might want to remortgage your property and they generally boil down to lowering your payments or releasing equity.
Lowering your payments –
When you first sign up for your mortgage your lender may have offered you the best rates for the first 2-5 years of your term. However, once that deal comes to an end, you’ll more than likely be placed on standard variable rates that will be higher than what you are currently on. By remortgaging and signing a new deal you could get better rate, lowering your monthly payments.
Likewise, if indications point to the Bank of England raising interest rates in the near future and you are on a tracker rate mortgage, you may wish to change to fixed rate to save money.
Releasing equity –
If you’ve built up some equity in your property you might want to release funds especially if you’re planning to do some home improvements or want to purchase another property as a buy to let. This can be done by remortgaging.
It’s important to remember though that you cannot release 100% of the equity in your property.
Other reasons to remortgage could be that your house value has gone up considerably putting you in a much lower LTV (Loan to Value) band, making you eligible for better rates. It could also be that you want to overpay on your mortgage but your current deal won’t let you.
Is it worth looking at remortgaging?
If you are in a position where you can consider moving your mortgage, then you should at least look at your possibilities. There is absolutely nothing to lose by looking at your options. Just make sure you fully understand what they are get the right advice.
Who should be looking at remortgaging?
There is a temptation to say ‘everyone’ in answer to that question but there are some people who will suit remortgaging better than others. The first question to ask is if you are in a position to look at remortgaging in the first place. In some circumstances you may need to pay a fee for moving your mortgage, and as with all lending you will still need to demonstrate you can afford the new mortgage.
In what instances is it not a good idea to remortgage?
There instances where remortgaging is considered to not be a good option for you. For exampe:
- If you would have a large early exit repayment charge
- Have very little mortgage left to pay i.e. under £50,000
- Have little/no equity
- Have new financial problems
- Already have good mortgage rates
- The value of your property has dropped
In these cases, there are other solutions you should consider such as product transfers or (dependent on age) equity release.
Why do people talk to use about a remortgage?
There are many reasons but 6 of the more common ones are.
- Looking for a better deal
This is very common, but sadly it is also a real opportunity to save money that people sometimes do not explore. Lenders want to attract your business, so remortgaging is usually worth looking at to see what you could save.
- You are on a deal that is about to end
One of the unfortunate results of something as regular as the mortgage payment, is that paying them becomes a habit. Often that means that people just slide from their initial deal onto a standard mortgage. If you are on a mortgage deal that is coming to an end, then it is very likely time to start looking at what is available with better terms.
- Your house has a lot of equity because of an increase in value
Why does this matter? Well, when a mortgage is offered the value of your potential equity in the house contributes to the interest rate. So, if you are in a position where your remortgage will be considerably less than the potential equity in the house, you may be able to access a better deal.
- Your current lender is reluctant to lend you more
It can happen that your current lender is not so keen to change things for a whole host of different reasons. Let’s chat about why and see if there is another option.
- What used to be a good fit is now not so comfortable
As we go through life our financial situation changes. What worked for you when you took the mortgage may now no longer fit your situation. You may have, for example, considerable savings, come into a windfall such as an inheritance, a much higher income. Perhaps you are looking to change to a mortgage that will allow you to pay more off your outstanding amount. As your circumstances change your mortgage should ideally change to fit them.
- You are worried about an endowment mortgage.
If you are still on an endowment mortgage that you took out some time ago it’s worth reviewing it. Some endowments are possibly not going to do what they were originally expected to do, and you may have a considerable shortfall when it comes to paying off your mortgage as it ends.
What are the options when remortgaging?
Before you look at your options you need to first understand what your goal is in remortgaging, to lower your payments or to release equity.
You can then consider what type of new mortgage you want. Your options will usually be:
- Fixed rate – for those that like to know exactly what they’re paying each month. These are usually available for 2-5 years but be aware that if rates fall you cannot take advantage of them as you are locked into your current rate.
- Tracker – following the Bank of England base rate your mortgage rates will track and change with it whether it goes up or down.
- Capped rate – not fixed but variable. However, if rates reach a certain limit they can be capped, meaning you will never pay over a certain amount. They do however, usually have higher rates than fixed rate mortgages.
- Offset – offsetting your savings against what you owe, in turn reducing the overall amount of interest you pay. They do however tend to come with higher rates.
There are a number of products and rates to choose from so it’s always worth talking to a specialist advisor who can help you understand what may work best for you based on your individual circumstances.
What to consider when looking at remortgaging?
If you’re looking to remortgage there are a lot of things to consider other than the best mortgage rates. You need to consider the overall cost of the mortgage over the duration of its term.
For starters you need to check your current deal and look at whether there are any early repayment charges and exit fees on your current mortgage. This is important and you will need to crunch some numbers in order to work out if remortgaging is a viable option or if the charges are too large and outweigh the savings or potential equity release amount.
From here it’s usually best to shop around taking into consideration any:
- Arrangement fees
- Mortgage survey charges
- Valuation charges
- Administration fees
- Legal fees
Each deal you will look at will have different costs attached so it’s important to not only look at the rates on offer. There are remortgage deals out there though that will offer free valuations, legal services and no product fees.
Shopping around for a deal that suits you instead of taking the first one you are offered is something to consider. A mortgage is a long-term financial commitment and spending some time doing this could save you a lot of money.
Here at the Online Mortgage Guru we know that helpful and insightful advice is useful when looking for the best remortgage options and deals.
Mortgage advisors will help borrowers understand all of their options, do the number crunching and match lenders to their clients based on their personal circumstances. A lot of them are a whole of market brokerage, so will have access to high street lenders right through to specialist lenders.
Contact us at Online Mortgage Guru on 0345 3669799 or email us via firstname.lastname@example.org and we will put you in touch with a suitable specialist to handle your enquiry.