When Should You Remortgage?
When your current mortgage is coming to an end, it is a good idea to look into remortgaging your property. This allows you to look at deals offered by other lenders to see if they offer better rates.
Remortgaging is when a mortgage is taken out on a property that you own. There are many reasons why people remortgage their properties. For example, those who wish to redecorate or make improvements to their home.
Remortgaging can be a great way to reduce monthly payments, save money, and allow you to swap to a cheaper rate. This is a smart move if interest rates are predicted to rise.
In this guide, we’ll be taking you through everything you need to know about when you should remortgage.
When is the Best Time to Remortgage?
Most people begin their remortgage search between three and six months before the end of their contract. This is to avoid any penalty costs. The best time to remortgage is dependent on your financial situation. It’s best to calculate when your mortgage ends and when you wish to remortgage.
A remortgage solicitor can provide advice and ensure that you have a smooth process when moving from one lender to another.
Technically, you can remortgage at any point. However, remortgaging at the best time will ensure that it is beneficial for you. Here are some factors to consider when deciding if it is the best time to remortgage:
- Current deal is ending: if you decide to remortgage six months before your current deal ends, it may not incur a penalty cost. However, this is dependent on your existing lender, so check their terms and conditions beforehand.
- Better deal: you may find that you can get a better mortgage deal when remortgaging. This is usually the case for those who have built up equity in their property. It allows them to receive a good deal from either their current lender or a new lender.
- Lower interest rates: remortgaging your property may come with lower interest rates.
Why Should I Remortgage?
Here are the pros for remortgaging:
Current mortgage deal is ending soon
The most common reason why people seek to remortgage their property is that their current mortgage deal is ending soon. Most mortgage deals are temporary and last for a few years and consist of fixed rate, discount, or tracker mortgages. The type of mortgage you choose will impact how much you pay per month and how much you pay. For example, buy-to-let mortgages can differ from residential mortgages.
If you allow your fixed term to end without arranging a remortgage, you will be charged your current lender’s standard variable rate, known as the SVR. Your SVR is likely to be higher than your previous interest rate. This is why people tend to look elsewhere for a new deal.
Looking to get a better rate
Some people look to remortgage in the hopes of receiving a better rate. If you are currently locked in a fixed-term mortgage contract, you may have to pay an exit fee.
The Bank of England's interest rates have increased from 1.75% to 2.25% in September 2022. This means that finding a better rate is not guaranteed. However, if you do find a better rate, make sure that you do your maths before proceeding. This will ensure that all exit fees and early repayment charges are accounted for.
More flexibility with mortgage payments
Another advantage is that remortgaging gives you flexibility with your mortgage payments. For example, if you want to take a mortgage holiday, remortgaging may allow you to do this. This is because you can remortgage to a different loan type that suits your financial situation better.
House value has gone up
If your house value has gone up, remortgaging may provide you with lower rates. Again, this is not guaranteed and is dependent on your current mortgage deal and financial situation. However, if your property value has increased, it is worth looking at what deals are available. A mortgage valuation can help to determine this.
You want to borrow more
Remortgaging your property may allow you to borrow more money. If you wish to make home improvements or pay off other debts, your lender may allow you to borrow more. However, they may ask you for evidence to show that the extra money has gone on what you have declared. Therefore, make sure you keep all communication and documentation to hand.
You're worried about interest rates going up
As previously mentioned, interest rates have increased, rising to 2.25% in September 2022. Depending on what kind of mortgage you have, your interest rate may be directly affected by these increases. Variable mortgage repayments vary each month as they are impacted by interest rates. This means that when the Bank of England's interest rates go down, your mortgage repayments will be lower. When the interest rates increase, the repayments will be higher.
If you have a fixed-rate mortgage, this means that the interest rates will not affect your repayments during your fixed term. If your fixed term is coming to an end, it is best to look at other lenders to see what they are offering if you are concerned about increasing interest rates.
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Why Shouldn’t I Remortgage?
Here are the cons of remortgaging:
If you’ll have to pay a heavy early repayment charge (ERP)
One of the major disadvantages of remortgaging is the early repayment charge, known as an ARP. This is a penalty fee that is paid when exiting a fixed-term mortgage scheme early. People wait until they have between three to six months left of their fixed term to search for a new deal to avoid paying the ERP.
The ERP amount is dependent on your lender and what you are transferring to. For example, if you are swapping lenders, it is likely that you will be paying a higher amount. However, if you are swapping to another type of mortgage loan with your current lender, they may charge you a lower ERP as this is seen as a product transfer.
Negative equity occurs when your house value has gone down. Negative equity means that you are paying a larger amount compared to the property value. Being in negative equity does not necessarily affect your credit score, it can lead to problems in the future as it will appear on your credit record.
Some people wait until house prices go up in their area before proceeding to remortgage their homes. This is because it will likely provide better rates. However, this is dependent on your situation and what type of mortgage you have, and how much you have paid off among other factors.
You have a good interest rate for your term with plenty of time left
Some people don’t wish to remortgage as their current deal is good and they don’t want to swap. However, if you are on a fixed-term contract and it is ending soon, there is a high chance that your lender will not be offering the same deals. This is because interest rates are rising and therefore, the mortgage offers will be reflective of this.
If your term is coming to an end, you may have to look at your current and other lenders to check which offer is best for you. This will avoid you from paying the standard variable rate SVR.
Financial circumstances have changed
Your financial circumstances may have changed since taking out your current mortgage deal. This can include losing your job or becoming self-employed. If your financial situation has changed, mortgage lenders will need to see evidence of this. This is because you may not be suitable for certain schemes depending on the lender and the schemes available. If you do not fit the lender's criteria, this can stop you from getting a mortgage.
If you are unable to swap to another lender, your current lender may have other mortgage schemes that are suitable for you. While they may not be the best rates, the fees to swap over are lower as this is known as a product transfer.
Your mortgage debt is really small
If your mortgage debt is small, such as £50,000 or lower, swapping to another lender may not be worth it. There are some lenders that won’t offer mortgages for low amounts, so you may struggle to find a good rate.
Another important factor to bear in mind is the fees. Smaller mortgages tend to bring larger fees, especially when it comes to swapping lenders. Therefore, make sure you account for this before confirming any changes.
You've had credit problems since taking out your last mortgage
Lastly, you may have had credit issues since taking out your previous mortgage. Qualified mortgage brokers are regulated by the Financial Conduct Authority, known as the FCA. The FCA and your mortgage broker will check that you are able to afford the mortgage at the current and higher rates in case interest rates increase.
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How Early Can I Remortgage in a Fixed Term?
How early you can remortgage your property in a fixed term is dependent on your lender. However, a mortgage offer lasts for an average of three to six months. The longer you wait before remortgaging your property, the better the mortgage rates will be. For more information, read our guide on how long does a mortgage offer last.
If you are moving your mortgage, there may be some fees that you have to pay. Fixed-term mortgages mean that you are bound to that lender for a set period of time and will pay a fixed rate. However, if you decide that you want to remortgage before your fixed term has ended, you may have to pay penalties and fees. Therefore, it’s best to double-check the potential fees before you go ahead with your remortgage. This will ensure that you are not blindsided by any unexpected costs.
You may have to pay an early repayment charge as well as an exit fee. Make sure you research your mortgage broker and look through their terms and conditions.
Is it Better to Remortgage With My Lender or a New Lender?
There are pros and cons that you should consider when deciding whether wish to remortgage with your existing lender or a new lender. New lenders are more likely to offer lower mortgage rates. However, the application process takes longer and you will need to take time to compare interest rates.
On the other hand, applying for a remortgage with your existing lender will be easier and more straightforward. However, the downside to remortgaging with your current lender is that the interest rates may not be lower.
Therefore, when it comes to deciding who to remortgage with, research the market thoroughly. Look at what other lenders and providers are offering as well as what your current lender is offering.