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Mortgage Renewal vs. Remortgaging | Pros & Cons
Your mortgage may stretch for 25 years or even more before it’s repaid, but there will be several times throughout its lifespan when it needs to be revised and renewed.
You have two main options when changing your mortgage: renewal and remortgaging.
A mortgage renewal is a new mortgage with your existing lender at the end of your mortgage term, while a remortgage is often with a new lender (although it doesn't have to be), can happen at any time, and can include additional fees.
This guide will help you understand the differences between the two more clearly, and decide on which option is right your you and your mortgage.
And to speak to an adviser at any point about your situation, please get in touch.
The Reason for Mortgage Renewal
Most mortgages aren’t actually designed to be permanent.
Though your mortgage lender would love it if you’re going to remain their dedicated customer for the next two to three decades without them doing anything to keep you, the reality is that it isn’t all that likely.
Most people will take out a fixed rate mortgage in the first instance, and this fixed rate will come with a term - the length of time for which it is valid.
At the end of that term, your mortgage deal is ended - it’s time for a renewal.
Case study: Read our case study below detailing how we saved our client over £37,000 by switching lenders on their mortgage
Mortgage Renewal vs. Remortgaging
There’s a reasonable amount of similarity between a mortgage renewal and remortgage, so it’s easy for the two terms to be confused. In both cases, you are replacing your current mortgage deal with a new one.
Mortgage Renewal
- Is with the same lender
- Happens at the end of your current mortgage term
Remortgage
- Is often with a different lender (though it doesn’t have to be)
- Can occur at any time
- Can include additional funds
Comparing Mortgage Renewals with Remortgages - Pros and Cons
When deciding whether to sit comfortably with a mortgage renewal or make a jump to a different lender and obtain a remortgage, there are a few considerations to make.
Here are the 7 main things to think about:
Avoiding Fees
Early repayment charges (ERC) are one of the biggest reasons why waiting for your current mortgage term to come to its natural end is a good idea.
Jump too early and you will be paying a considerable amount in charges to get out of the contract. This is something that often has to be worried about with a remortgage but is never relevant with a renewal.
You check check your policy documents, reach out to your mortgage provider, or speak to an adviser like us to find out whether your current mortgages has ERCs in place.
Advantage: Renewal
Improving Mortgage Terms
In both the case of a mortgage renewal and a remortgage, you are hoping to improve your terms - though this may not always be possible.
The mortgage landscape will typically have changed since you last updated your mortgage, and this may be for the better or worse. If rates have gone up considerably, then it is more likely you will have to accept the best from a range of unappealing options.
The additional spread of products that are available to you when you switch from one lender to another means it’s more likely there’s a good deal out there. Also, while a renewal means waiting for the current term to come to an end, the remortgage allows you to make a move when the options are favourable to you.
Advantage: Remortgage
Eligibility
One of the key differences between a renewal and a remortgage lies in the checks that occur during the process.
A renewal is a continuation of an existing relationship with your lender and they are unlikely to need to undertake any credit checks.
A remortgage, on the other hand, is a completely new mortgage application and subject to rigorous eligibility checks. If your situation has worsened since first getting your mortgage, there is a reasonable possibility that it could be difficult to get better rates, or even a remortgage at all.
In short - a renewal is practically guaranteed to be approved, while there’s no such security with a remortgage.
Advantage: Renewal
Flexibility
Whether you renew or remortgage, you should be looking to the terms of the contract to make sure there’s room for movement going forward.
Locking yourself into a mortgage that has high ERCs or other conditionals that limit your ability to make different decisions in the future just can mean pushing problems down the road.
A renewal is going to offer a far more limited set of options regarding mortgage contractual conditions than the wide range of remortgage products available.
Advantage: Remortgage
Convenience
A mortgage renewal is generally much more convenient than a remortgage.
With a renewal, you’re continuing your relationship with your existing lender, so the process is much more straightforward, with little form filling needed.
Advantage: Renewal
Access to Additional Funds
Remortgaging opens up the door to a complete re-evaluation and refinancing of your loan. If you’ve built up equity in your property then you may be able to borrow more, giving you some useful capital for home improvements, consolidating debt, or other large expenses.
It is rare for a mortgage renewal to offer this extra money, instead simply continuing the outstanding loan balance.
Advantage: Remortgage
Loyalty Incentives
It’s worth checking to see if your lender has any sort of incentive plan when your mortgage renewal approaches as they can tip the balance in favour of the lender, even if a simple number crunch isn’t as appealing.
Advantage: Renewal
What to Consider Before Agreeing a Mortgage Renewal
It’s important not to just sign on the dotted line without thinking through your mortgage renewal options. Spend time considering:
- Your current mortgage - It’s amazing the number of people who accept a renewal option without even knowing the interest rate, fees, and features of the mortgage they’ve been paying for months. Make sure you know the details of the mortgage you are moving away from.
- The laziness of an automatic renewal - It’s extremely unlikely that the default renewal option is the one that’s laid out best for you. Being lazy and just accepting whatever it is your mortgage provider chooses for you is rarely going to be your best option. Be proactive!
- Interest rates - Probably the single greatest influence on your decision will be the interest rates on offer. Remember, if you’re not looking at a fixed term, this may fluctuate and you should be aware of how that might directly affect your monthly mortgage repayment.
- Mortgage type - Fixed rate, tracker mortgage, or variable rates - investigate the different options available and choose the one that fits your financial situation. Related: Fixed or Tracker Mortgage?
- Your financial goals - You may be in a very different financial situation when the renewal comes up to the one you were in when you first got your mortgage. Consider how your goals may have changed and select a product that best reflects your current goals rather than simply repeating the past.
- New options - Mortgage products can have some features that you can take advantage of, such as offset accounts or overpayment options. Take these into account before choosing.
- The power of negotiation - Though many decisions are made by computers, there’s still often an option to speak directly to a lender and negotiate your mortgage product. Your lender is looking to keep you as a customer by making the renewal more attractive than a remortgage with another provider, which does give you some leverage; at least enough to open a conversation.
- Remortgages- Agreeing to a renewal without even exploring the remortgage offerings may be a little short sighted. Changing lenders could save you money - it’s certainly worth spending some time researching what’s available to you.
- Expert advice - Professional mortgage brokers, like our team at Clifton Private Finance, spend all day, every day, traversing the UK mortgage landscape to investigate the full range of options out there and discover the very best deals. We can save you money! Talk to one of Clifton’s mortgage experts to see how we can help you get the very best out of your mortgage renewal process.
Case study: Our case study below explains how we remortgaged a holiday home in Norfolk to release equity.
Getting the Timing Right for Your Mortgage Renewal
Keeping an eye on your mortgage is important throughout its long lifetime. When it comes to managing your mortgage renewal options it’s important that you’re proactive and engage with the process as soon as possible.
This is plenty of time for you to analyse the market, get some independent professional advice, and weigh up your options. Act then and you’ll be able to get the best from the next phase of your mortgage deal; let the opportunity for some proper market comparisons fall away with the deadline approaching and instead you’ll find yourself rushing into whatever last-minute deal looks reasonable.
It’s also pointless to try to make a decision too early. The market will change, interest rates will move, and the deals you planned to jump on will be gone. Unless you are willing to accept the fees and other problems of a remortgage to take advantage of any deal you find outside of your renewal period, it’s best to wait until it’s relevant.
Getting the Right Mortgage Renewal with Help from Clifton Private Finance
At Clifton Private Finance, our team of expert mortgage advisors are here to help you. We can help you understand the finer nuances of any mortgage agreement and are happy to answer any questions you may have.
Working together, we can make sure you get the best deal for your mortgage renewal. Contact us today.
