Why Remortgage your Home?
Did you know that around a third of all home loans made in the UK are remortgages? For most people, their mortgage is their biggest financial commitment, so it makes sense to streamline the debt where you can – which is exactly what a remortgage does. But how does a remortgage work, and what are the pros and cons of remortgaging your property?
What is Remortgaging?
Put simply, a remortgage is the process of paying off one mortgage with the proceeds from a new mortgage on the same property. It’s often done when the initial mortgage comes to its end, or if you want to switch to a different type of mortgage, or one with a more favourable interest rate from another provider.
You can remortgage to replace your existing mortgage, or to borrow money against your property and release some funds. It might sound complicated, but in reality it’s quite simple. All you do is apply for a remortgage with your chosen lender, which is similar to the process for a normal mortgage. When you are approved, you use the new money to pay off your existing mortgage, leaving you with just the new mortgage to repay.
So Why Would You Remortgage Your Property?
There are a lot of reasons you might want to consider remortgaging your property, including:
- Your current deal is about to end: Many of the best mortgage deals only last for a short time, often between 2 – 5 years. When that comes to an end, your lender will put you on a standard variable rate mortgage – which is likely to be higher than your old interest rate and far from the best offer available. At this stage, you might want to switch to a better deal to save some money.
- You want a better interest rate: If your interest rate is seeming a little unmanageable, or just you think it’s too high, then you might want to consider switching to a mortgage with a more favourable rate, either with your existing lender or with a new one.
- Your home’s value has gone up – a lot: If the value of your property has risen sharply since you first took out your mortgage, you might find you’re in a lower loan-to-value band, which means you’re eligible for much lower rates.
- You’re worried about interest rates going up: We are in a time of massive uncertainty, so you might be watching the ratings with a keen eye. If the bank of England base rate is predicted to go up, then this may affect your mortgage payments, depending on the type of mortgage you have.
- You want to switch from interest-only to repayment: You may have taken out your mortgage when you were in one financial situation, and now you find yourself in another. Interest only mortgages were a very popular option a few years ago, but their main flaw is that the loan value never went down. If you want to start actually chipping away at the mortgage value, a remortgage could help.
- You want to borrow more: Of course, you might want to borrow more money against the value of your property, but your current lender has said no. Remortgaging with a different lender might help you raise money cheaply on low rates, freeing up that capital for you.
Are There Any Reasons You Wouldn’t Remortgage Your Property?
That’s all the positives, but are there any negatives? Are there any reasons why remortgaging might not be the right choice for you? Yes, mostly if:
- Your mortgage debt is really small: Once your mortgage falls below a certain amount – usually around £50,000 – it might not be worth switching lenders just to save a few pennies on fees. In fact, many lenders won’t take on mortgages of under £25,000.
- Your early repayment charge is really big: Most mortgages include an early repayment fee – an amount of money or percentage you need to pay if you want to pay off your mortgage early. This includes if you are remortgaging. So if that fee is huge, it might cost you too much to free yourself from that lender.
- Your circumstances have changed: If your financial position has changed since your current mortgage (for example you left full-time work and are now self-employed), you may find it more difficult to get a new mortgage. You may not fit new criteria, or be seen as too much of a risk.
- Your home’s value has dropped: You may have had a 10% deposit when you bought your home and got a decent mortgage, borrowing the remaining 90% of your home’s value. But now, your house price has dropped and the amount you owe is a bigger proportion. It happens, and the only thing to do in this situation is sit tight and make overpayments when you can afford it.
At Chilvester Financial, we are always happy to advise on whether remortgaging is the right option for you. We listen to your situation, ask questions and run the numbers to tell you whether you should remortgage to achieve your goals, which lenders would be best for you, or whether there is another way to get what you need. For more information, just get in touch with the team and book your free consultation.