Should I remortgage?
There are benefits to remortgaging – here’s useful information on why and when you should do it.
Last updated on
May 23, 2022 14:11
Remortgaging can lower your mortgage repayments, or release cash tied up in your property, but should you do it? The answer depends on a few things.
In this article, we explain what it means to remortgage, why you should do it, and when. We also cover a few situations where remortgaging might not make sense.
Remortgaging means switching your current mortgage deal to another mortgage deal, either with your existing lender or a different one.
For many people, the reason for remortgaging is simple: it’s all about saving money on mortgage repayments. A mortgage is often your largest monthly expense, and if you shop around (like you would for a new broadband or mobile phone contract), you can make major savings.
But cheaper monthly payments isn’t the only reason to remortgage. Here are a few other examples:
Here are a couple of times when it might make perfect sense to remortgage:
Let’s dig into these in a little more detail.
Some of the most attractive fixed rate mortgage deals last for only a short time – usually two, three, or five years (although some do last longer). During that period, you pay the same amount each month and the interest rate stays the same.
But when that period comes to an end, your lender will probably shift you over to their standard variable rate (SVR). SVR is basically the lender’s out-of-contract rate, and it tends to be a lot more expensive than the rate you get in a deal. Ending up on an SVR can often mean paying up to double the interest rate that you were paying before.
But if you line up your remortgage with the end of your current deal, you can move onto a new and fixed rate deal (either with your existing lender or a different one), hassle free.
If your property value has gone up since you took out your mortgage (win!), you could find yourself with a lower loan to value (LTV).
LTV is the size of your mortgage compared to your property’s value. If your home is worth £250,000 and you have a £200,000 mortgage, your LTV is 80%. Imagine your home jumps in value by £15,000, and it’s now worth £265,000. You still have a £200,000 mortgage but the difference between the amount left on your mortgage and your property value has increased. Your LTV is now 75%.
Lenders think of LTVs in ‘bands’, offering lower mortgage interest rates if you’re in a lower band. 60% LTV is the best from a lender’s perspective, then 75%, then the bands go up in 5% chunks from there.
LTV isn’t the only thing that affects your interest rate of course – other things, like your credit score, can also affect the rate lenders offer you.
It depends on your situation.
If your current fixed rate deal is coming to an end, you should remortgage before the interest rate goes up. It’s also a good idea to keep a close eye on your LTV over time, to make sure you’re always on the best possible rate.
This could mean remortgaging several times in pursuit of a better deal as you edge closer to paying off the full amount — but there’s no magic number.
There will also be times when remortgaging just doesn’t make sense. These include:
The smaller your mortgage, the more you’ll be affected by remortgage fees. If your remaining mortgage is less than £50,000, the cost of remortgaging will probably outweigh the savings you’d hope to make.
And once your mortgage is down to around £25,000, some lenders won’t consider you for a remortgage at all.
Leaving a mortgage deal early can mean paying an early repayment charge (ERC), which is usually a percentage of the remaining mortgage. This might mean that remortgaging before your current deal expires simply doesn’t make financial sense.
For example: If you have a remaining mortgage of £150,000 and the ERC is 5%, you’d be charged £7,500 to exit the agreement. If the ERC is higher than the savings you stand to make by switching, it’s better to sit tight — at least until the ERC clause expires.
If your financial circumstances have changed since agreeing your current mortgage deal, you may find it trickier to get a new mortgage deal.
For instance, if you’ve become self-employed, stopped working, or were furloughed during the COVID-19 pandemic, you could fall outside a lender’s affordability criteria. This doesn’t always mean you can’t remortgage, but the choice of deals may be limited at the moment.
You don’t need to remortgage. If you’re happy with your deal, you can choose to stick with your current lender for the duration of your mortgage agreement.
But if you’re about to slip onto your lender’s standard variable rate, you could save a lot of money by remortgaging.
Use our mortgage calculator and remortgage calculator to see how much you could save.
Here we’ll explain when you can remortgage, when you should start the process, and share a few examples of when it might not make sense.
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