Post difficulty – Easyish. It’s time to discuss how to remortgage and save yourself money. The process can be straightforward and there can be so many benefits if it is done at the right time, the right way.
What Does ‘Remortgage’ Mean?
To remortgage simply means replacing your existing mortgage with another one from a different mortgage lender.
The term remortgage shouldn’t be confused with a product transfer. A product transfer is where you stay with the same mortgage lender and change your product only.
Both of the above terms are for existing properties, not for a new one. A new property has a new mortgage.
Mortgages in general can feel a bit daunting and scary, so before you go any further it would be a good idea for you to read the guide: What Is A Mortgage, And How Do You Get One? It can be useful to brush up on your mortgage knowledge if you’ve never remortgaged before or if it’s been a long time since you’ve dealt with your mortgage.
Why Should You Remortgage?
Your mortgage will be one of the largest debts you’ll ever have, so it’s very very important to ensure you have the right one set up.
There are lots of great reasons for why you should remortgage:
- Your existing mortgage product is coming to an end. When you first buy a property, you take a product. This could be a fixed product (where your interest rate is fixed), or a tracker product (where your interest rate varies). These products generally come with a product term of 2, 3, 4 or 5 years, some may even be 10 years. When the product ends you move to the lenders SVR (Standard variable rate) which is generally more expensive. So, save yourself some money and start looking for a new product 3 months before the current one ends.
- You want a better interest rate. There are some instances where you may have a really high interest rate. This could be: adverse credit, foreign national mortgage, or a very low deposit. You may have had no choice when you purchased the house and it was the best you could get. Wait a short while and you might be able to get something better! Shopping around a year after owning the property might get you a better deal. You do need to check if you have any early repayment charges to come out of your existing product. If you do, make sure you weigh up the costs of the new product against the costs of the old and the charges.
- Extend or reduce your mortgage term. For similar reasons as above, you may have taken a term that wasn’t exactly to your liking, or your situation has changed. Most mortgage terms (not to be confused with product term that we spoke about above) last 25-35 years. Extending your mortgage term will save you money on your monthly payments, but you’ll pay more interest over the longer term. Reducing your mortgage term will increase the mortgage payments, but as you pay it off quicker it will save you money on the interest.
- Get a different fixed period. You may have taken a 2 year fixed originally and would prefer a 5 year fixed. Or the other way around, you took a 5 year fixed and would like a 2 year fixed. Remortgaging is a good time to change your product and get a different product term to suit you better.
- Your home value has gone up. Property prices have been rocketing recently. If this has happened to you and your property has increased in value you could remortgage to get a better rate. When you buy a house, interest rates are dependent on the amount of deposit you have. When you remortgage that deposit turns to equity, and that equity grows as the value of the property grows. When you remortgage you could get a cheaper interest rate which = cheaper payments simply because you have more deposit (equity) in the property – Saving money.
- You’re worried about interest rate changes. If interest rates are going up you may want to lock in for a lower rate before they go too high. Saving future you money.
- You’d like to overpay on your mortgage. Some mortgage lenders don’t allow you to overpay on your mortgage, or they may have a limit of 10% per year. You may wish to overpay more than this and want better flexibility.
- You’d like to borrow more money. You may find that you have more money in the property than when you first bought it. The property value may have increased or you may have reduced your mortgage through your monthly payments. If this is the case then you could take money out (capital raise) from the property. You may then use this money to clear debts (debt consolidation) or to buy another property to let out (gearing).
Why Shouldn’t You Remortgage?
There are a few reasons why you shouldn’t remortgage:
- Your early repayment charges are too high. Usually there is a charge to come out of your product early. These can often be several thousands of pounds making a remortgage a bad idea. Make sure you check this before considering a change. Once the product has ended this usually isn’t an issue.
- Your situation is different to when you first took the mortgage. If your situation has changed, such as your income has dropped, you may not be allowed to remortgage. Mortgage lenders have to check your income when you remortgage and if they deem it unaffordable then they will not offer you the remortgage. If this is the case, you may want to consider a product transfer. This is where you stay with the same lender and just move to another product.
- You’ve had debt issues. Similar to the above, mortgage lenders check your credit history. If you’ve missed payments or had any defaults, then it’s unlikely they will offer you a remortgage. Sticking with the product transfer may be the best option.
- You can’t get a better deal. Your mortgage lender may be the best in the market, if that’s the case you should stay with them. Consider a product transfer.
How To Remortgage
You could do this yourself, have a look through the comparison websites and see what’s available. However, it’s probably best you speak to a mortgage adviser.
Mortgage adviser are great, they look through all the products available and select the best one for you. They will also tell you if you’re making a bad decision.
Most mortgage advisers are free, if they’re going to charge you for a remortgage – Find someone else! Also, make sure they’re whole of market; don’t limit yourself.