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Remortgaging can often save you money and reduce your monthly payments, especially if you’ve been on a fixed rate deal. Is now the time to look for a new mortgage?
What is remortgaging?
Remortgaging is the process of taking out a new mortgage product with a new lender. You can also choose to remortgage with your current lender – this process is called a Product Transfer.
When is it a good time to remortgage?
Typical times to remortgage might be:
- When your current deal, especially a fixed-rate period, is ending
- If you believe interest rates might increase – a fixed rate mortgage will lock the interest for 2,3, 5 or 10 years
- Switching from an interest-only to a repayment mortgage – or vice versa
- To get a better rate, especially if interest rates have fallen
- When your home has increased in value – a 5% decrease in your loan-to-value ratio could mean you get a better rate
- To use your equity to fund home improvements or pay off debts
- To get a more flexible mortgage – perhaps you want to overpay and reduce the loan more quickly
- To extend or decrease the term – the standard term is 25 years but longer and shorter terms are often available
When is remortgaging not a good idea?
Remortgaging is not always recommended. If you’re in one of the following situations, you might not find a cheaper deal:
Your financial situation has changed
If your income has reduced, or you have retired, it could be difficult to get a mortgage deal as good as your current one.
You’ve had credit problems
If your credit score is likely to have worsened since you took out your mortgage, lenders may put you on a higher interest rate.
To avoid paying an early repayment charge
Some lenders charge an exit fee if you end the deal early. Fees can reach 5% of the mortgage balance. If that makes a large total, it’s usually worth waiting until the end of your deal.
You have little equity
If you haven’t repaid much of the loan yet, or worse, your property value has fallen, you will have a higher loan-to-value. That may mean less competitive mortgage deals are available.
You don’t have much left to repay
If you only have a few thousand pounds left until you pay off your mortgage, changing deals won’t reduce your payments much. You could, however, remortgage to borrow more money if needed.
You’re already on a competitive rate
If you have a good rate on your existing mortgage, whether it’s a variable or fixed rate deal, there’s no need to change.
What happens if I don’t remortgage after my deal expires?
At the end of a mortgage contract, such as a two year fixed rate deal, you move to the lender’s standard variable rate. This rate is usually expensive and your monthly repayments increase considerably.
Avoid this price hike by talking to your Mortgage Broker a few months before the deal comes to an end. You may be able to find a better deal with your current lender, or you could move to a new provider. Either option will involve a full mortgage application and credit check, so it’s important to plan in a few weeks for this.
How do I prepare my finances for a remortgage?
There are a few things you can do to improve your chances of a competitive deal and getting approved for a mortgage.
First, check your credit record for any nasty surprises. Don’t apply for credit just before seeking out a mortgage – the lender will want to know why you need extra money.
Try to avoid heavy spending in the weeks before you apply, as lenders look at how much you spend against how much you earn. Stay out of your overdraft too, as this can indicate that you have difficulties managing your money.
How could I improve my chances of a good remortgage?
You should find it straightforward to remortgage your home if your financial situation hasn’t changed and you have paid off some of the mortgage since you took it out. The lower your loan-to-value, the better the mortgage rates you’ll potentially be offered.
It also helps to check you have all the documents you need. Check your passport is valid and collect recent payslips, bank statements, utility bills and your P60.
What fees are involved in a remortgage?
Many mortgage deals involve an Arrangement Fee, which is either a fixed sum or a percentage of the total loan. Usually, you can either pay this upfront or add it to the mortgage total. Depending on the type of mortgage there might also be an additional booking fee of £100 to £200.
You may have to pay Legal Fees, although some lenders offer these free as an incentive to choose them.
How can a Mortgage Broker from Rebus help me remortgage?
Getting the most valuable deal with a remortgage involves a fair bit of research and comparison. Rebus will do all the legwork for you – we explore your specific situation and find good value deals to meet your needs. We’ll look at rates, fees and criteria to recommend a suitable mortgage deal.
Contact us today for advice and recommendations on your remortgage options.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.