Most people buying a property don’t have the cash available to cover the full purchase price. Instead, they borrow the money they need in the form of a mortgage.
A remortgage is a new mortgage on that same property. It replaces the original deal, and can be from the same lender or a different lender.
Why do people remortgage?
There are a number of reasons why people might choose to remortgage.
The interest rate charged when you take a mortgage out is generally tied to the loan-to-value (LTV) ratio – effectively the amount you borrowed as a percentage of the sale price. The higher the LTV, the more you can expect to pay. If your property has increased in value, either because prices have risen or as a result of renovations you’ve undertaken, then the LTV will have fallen. Remortgaging could give you access to lower interest rate deals.
It might be that you want to release some of the equity in your property, perhaps for renovations, a major purchase, or a celebration event such as a wedding, an anniversary or key birthday. Alternatively, you might want to consolidate debt and feel this is the best way to do it.
You may be in a position to start paying more per month towards your mortgage, perhaps due to paying off another debt or getting a good pay rise, but be prevented from doing so by the terms of your current mortgage.
Finally, you might be on a fixed-term deal that’s coming to an end and want to get the best deal available now, rather than just settling for the lender’s standard variable rate (SVR).
Of course, you don’t have to wait until your current deal ends; if the circumstances are right, you can remortgage early.
Say you’ve discovered a great deal and you’re concerned that it will no longer be available when your current deal ends. In that case it might be worth making the switch now rather than waiting.
However, you need to make sure you won’t be hit by excessive fees if you terminate your current mortgage deal early, and also be aware of any arrangement fees attached to the new mortgage. At the very least, you need to make sure your gains aren’t wiped out by charges.
When should I remortgage?
If you plan to remortgage, you should start looking for a new deal three to four months before your current one ends, to enable a seamless switch.
The benefits of remortgaging can include paying a reduced interest rate, reducing the remaining term of the mortgage, and the chance to release equity that has built up in the property.
The best time to remortgage will depend on your own personal circumstances. As we’ve mentioned, some people do it because they now have more funds to pay against their mortgage. If the opposite is true and you find yourself with less money, perhaps due to a pay cut or taking a new job following redundancy, then you need to proceed with caution. Your new circumstances might mean you no longer meet eligibility criteria, so not only are you stuck on the same deal, but you also have a credit search against you.
If you are remortgaging to consolidate debt, then you might want to check your credit report before making enquiries. If you have acquired bad debt, then you might end up paying more for the new mortgage or may no longer be eligible.
Finding the best rate
Many of us automatically shop around when our insurance comes up for renewal, and we keep an eye on fuel prices and switch provider if we’re paying more than we need. But we don’t all keep an eye on mortgage deals and, as a mortgage is usually our biggest financial commitment, that may be a costly error.
You’ve probably used price comparison websites for other products, such as insurance and energy prices, and they are also available for remortgage deals.
You can also contact your lender and see what they can do for you; they might be prepared to offer you a better deal to keep your business.
Alternatively, you could take advice from a mortgage advisor. Remember that not all advisors are independent, meaning the deals they can offer you are limited to those financial institutions they are affiliated with. An independent mortgage advisor will be able to give you a wider range of options.
Want to know more?
Mortgagemove takes the legwork out of remortgaging. With expert advisors on hand to help, we combine industry expertise and access to an extensive panel of mortgage products and providers. Our mission is to match a mortgage to every need, at the best possible rate. Get in touch to see how we can help you.