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Remortgaging

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We’ve all heard of it, but do you actually know what it is and what it can be used/useful for?

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 is remortgaging?

In simple terms, it’s when you change or swap from your current mortgage. This could be changing to a new lender or a move to another mortgage deal with your existing lender. Essentially, it’s a process to pay off your current mortgage with the proceeds from a new one. 

There are a number of reasons to do this, but the most popular reasons are to move to a cheaper rate or release equity.

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. 

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.

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 info@theonlinemortgageguru.co.uk and we will put you in touch with a suitable specialist to handle your enquiry.  

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