A brief guide to remortgaging

With interest rates at an all-time low, falling from 0.25% to 0.1%, you might be wondering if you could secure a better deal on your mortgage. It might not be a great time for saving your money, but it could be an excellent time for borrowing.

You may have heard of remortgaging before but never really delved into the details. Put simply, remortgaging is when you move your mortgage from one place to another. This could be with the same lender or with a different lender. Remortgaging allows you to change the terms, interest rate, repayment period and more.

Mortgages tend to be the biggest financial commitment you’ll ever make, so it makes sense to check you’re always on the best possible deal. Remortgaging comes with fees, so you won’t want to remortgage as often as you might change broadband packages. But it is certainly worth looking around to see what is available – particularly when interest rates are low.

Just because you already have a mortgage, it doesn’t mean you will be automatically accepted. You’ll need to consider your financial position and if changes to your mortgage could derail your repayments.

What is remortgaging?

Remortgaging is essentially applying for a new mortgage, paying off your existing mortgage with the new mortgage, and then continuing to make payments on the new mortgage. You might do this to secure a better deal, to release some equity from your home, or because a fixed-rate mortgage has come to an end.

Just as you would shop around for the best possible deal on your utility bills, you can also use remortgaging to secure a better deal on your monthly mortgage repayments. You could also pay back your mortgage sooner by switching to a lender that allows over-payment without a penalty.

If you’re considering a remortgage, speak to a specialist mortgage broker to find out how they can help you secure the best possible deal.

Things to consider before remortgaging

Remortgaging is not something you should do on a whim. You need to consider your financial situation and make sure you won’t be losing out as a result of the changes. If you do find a cheaper mortgage, consider the following before making the switch.

1. Find out if the lender is offering a fee-free mortgage. Many lenders will do this to tempt customers from other lenders to switch their mortgage to them. If there is a product fee, you could lose money by switching.
2. Check if your current lender charges early repayment fees. Since you will be closing your mortgage account early, there may be a fee attached that could make remortgaging more expensive. The early repayment fee might be a fixed fee or a percentage of the outstanding balance.
3. Calculate your current LTV as it will be different to when you first applied. The LTV is your outstanding mortgage divided by the value of the property. So if you have an outstanding mortgage of £100,000 and the property is worth £250,000 the LTV is 40%.
4. Make sure you are ready to apply for a mortgage. You’ll have to jump through the same hoops as the first time you applied for a mortgage. Check your credit score, pay down your debts, and keep your monthly spending in check as you prepare to apply.
5. Use a mortgage broker to find the best deal. You’ll save money in the long run if you seek professional advice. A broker might come with a fee, but when they can save you money in fees and interest, this will nearly always pay for itself.

When should you consider remortgaging?

Remortgaging isn’t as simple as switching your Sky package, so you should only consider doing it when it is of most benefit to you. This could include:

• When interest rates fall
• When your current mortgage product is up for renewal
• When you want to switch from interest-only to repayment
• When there is an opportunity to secure a better rate
• When you want to be able to make overpayments
• When you want to borrow money by releasing equity

The most common reason for remortgaging is when your fixed-rate mortgage comes to an end. The most common term is 2, 3 or 5 years. After this period, you will be moved to a standard variable rate.

With this type of mortgage, your payments could go down with interest rates, but they can also go up. If you want stability and some reassurance that your repayments will always be affordable, you can look for another fixed-rate mortgage.

Curious about remortgaging? We help homeowners navigate this complex area and secure the best possible deal. Find out more about remortgaging with Niche Mortgage Info here.