Why you should (or shouldn't) Remortgage
What is a remortgage?
A remortgage is when you take out a different mortgage on a property you already own. This can be to replace your existing mortgage entirely or to replace the mortgage and/or take additional borrowing.
When should you remortgage?
If you shop around for your insurance and other outgoings/purchases, why not do the same with your mortgage? A good time to look at remortgage options will be when your current mortgage product is coming to an end - usually around 3 months before.
Why should you remortgage?
The general aim in remortgaging is to save or make you money. Here are some of the more specific reasons why people remortgage.
1. Move to a better rate
Each lender offers different products and when the majority of product rates come to an end, you will typically revert to your lender’s Standard Variable Rate. Recent research* shows that more than a third (36%) of homeowners are sat on lenders’ Standard Variable Rates and are potentially paying a lot more for their mortgage than they need to.
Moving to another lender or mortgage could save you money. Remember, it could be that the value of your home has increased (due to improvements or market factors) meaning that you have more equity in your property and can get a better deal.
Also, if you have accumulated some cash (e.g. through an inheritance or savings) you may want to take advantage of a more flexible mortgage such as one with an offset facility. An offset mortgage links your savings and/or current account to your mortgage meaning that instead of earning interest on your savings, you pay less interest on your mortgage.
2. Moving to a fixed rate mortgage
With mortgage rates at a historic low, there are plenty of people who consider an interest rate rise in the near future likely. If you agree and are on a variable/tracker rate you may want to lock in on a fixed rate.
3. Switch from an interest only to a capital repayment mortgage (or vice versa)
Your situation may have changed and it may be that an interest only mortgage (where you just pay back the interest) or capital repayment mortgage (where you pay back the interest and the capital) becomes more suitable.
4. Raising capital
You might consider remortgaging to raise capital for things like:
i) Home improvements e.g. a loft extension or new kitchen (which should add value to your property)
ii) Buying another property
iii) Investing the money elsewhere
N.B. approach raising capital with caution and always get advice from an IFA. Using capital from remortgaging to buy another property or investment is usually only worth doing if you are confident that the returns from these purchases will exceed any extra mortgage payments (including if interest rates rise in the future).
5. Make overpayments
You may want to overpay your mortgage but your current lender will not allow it (or may allow it but will penalise you heavily for it).
Overall, there are lots of different reasons why remortgaging could make good financial sense for you.
When shouldn’t you remortgage?
First and foremost, you shouldn’t remortgage if it isn’t financially viable to do so! A good mortgage advisor will be able to tell you if it is or isn’t worth your while. Here are some of the more specific reasons why people typically shouldn’t remortgage:
Why shouldn’t you remortgage?
1. Penalties and arrangement fees
Sometimes it could be that any savings that you would get by moving to a better deal are exceeded by penalties to redeem your existing mortgage early and/or arrangement fees to set up your new one. This is particularly likely to be the case if your current mortgage balance is very low.
2. Change of circumstances
If you have had credit problems in the past or your circumstances have changed for the worse, it may not be in your interest to remortgage as you may not fit the criteria of a new lender.
All in all, there are lots of things to consider in remortgaging. The best way to arrive at the best course of action for you is to speak to a reputable mortgage advisor who can advise you based on your specific situation. The adviser will probably want to see documents such as evidence of income, your credit file, a recent mortgage statement and bank statements because assessing a mortgage nowadays is done more on an overall affordability level rather than simply income multiples (although a lot of lenders do have this in the background).
*Research carried out by Opinium Research of 2005 people between 19th December 2016 and 4th January 2017