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A remortgage is when you replace your existing mortgage with a new one. There are many reasons for remortgaging, but the majority fall into one of the two following categories:
If you have a fixed rate mortgage deal, your interest rate will usually switch to the lender’s Standard variable Rate (SVR) which is likely to be higher and will probably mean that you have to pay more each month. By switching to a better deal with a different mortgage provider, remortgaging could potentially allow you to benefit from lower interest rates and lower monthly mortgage repayments.
Remortgaging to release equity in your home. This could be useful if you wanted to carry out repairs to the property, add an extension, help your child with their own mortgage deposit, or consolidate other existing debts.
Even if you are happy with your current mortgage deal, it is often worth keeping a close eye on the mortgage market to ensure that you don’t miss out on potential savings you could make by remortgaging your property.
Done wisely, remortgaging could save you a substantial amount of money on your repayments each monthly. Even if your new mortgage deal takes just a few percent off your current deal, that could add up a significant saving over the life of the mortgage. If you have had the same mortgage deal for several years, it may be worth checking periodically to see if better deals have become available.
If interest rates rise, remortgaging could be an attractive option for those home owners who currently have a tracker mortgage deal. By moving to a fixed rate mortgage deal, borrows can have the security of knowing exactly how much their mortgage payments are going to be each month.
Despite the potential savings, remortgaging is not always the most cost-effective option. If there are early redemption penalties on the mortgage product you currently have check the small print to ensure that these no longer apply when remortgaging. If you looking to remortgage to raise capital there are other options to consider using the equity in your home as security. It is important to compare the current rate you are getting on your existing mortgage with what you will get when you transfer to a new product. In some scenarios it is better not to remortgage but to take out a second charge mortgage.
One of the most important things to think about before considering remortgaging is the current value of your property in relation to its value when you bought it.
If you are self employed remortgaging may present a number of unexpected challenges depending on how long you have been self employed and the nature of your work and income - speak to our mortgage team for advice on your options.
If your property has dropped in value since you first took out a mortgage on it, you may be in negative equity, which means that you owe more on your mortgage than your house is worth. If you choose to remortgage while in negative equity, you will be required to pay the difference between the existing mortgage and the new mortgage.
Even if you are not in negative equity, remortgaging is still likely to incur various costs which you will need to factor in when considering how much money you will save overall by moving mortgages. Unless your existing mortgage term has come to an end, you are likely to be charges an exit fee in order to switch mortgages. It is therefore worth checking to see if the cost of the exit fee will be balanced out by the savings you make by remortgaging. In addition to potential exit fees, you will also need to budget for the usual costs of property buying, such as arrangement fees, legal fees and valuation costs.
Depending on your circumstances, remortgaging could save you money each month or allow you to release substantial equity in your home.
