Remortgaging your home involves moving your current mortgage from one lender to another, or from one product to another with the same lender. Switching up your mortgage can come with both advantages and disadvantages, both are important to be aware of. If you’re looking to get a clear view about whether a remortgage is right for you, our Resi Finance team have broken down the pros and cons to consider.
Want tailored advice for your home? Resi Finance is always on hand to help advise you on your options.
What are the advantages?
Benefit #1: Get a cheaper rate than the standard variable rate (SVR)
Unsure of what a standard variable rate means? This is an interest rate set by your mortgage lender after your tracker, fixed or discount mortgage is over. Usually, this has a higher interest rate, so it is best to remortgage to a better deal before this occurs.
Benefit #2: Reduce your monthly mortgage payments
The main reason people remortgage is to reduce their monthly repayments and pay less interest each month, meaning more disposable capital. When your current mortgage deal ends your lender will automatically switch you to the standard variable rate, which is often high-interest. If your current mortgage deal is ending soon, we have a step by step guide to help you remortgage with ease.
Benefit #3: Pay off your mortgage quicker
You may be in the fortunate position to be able to pay off more on your monthly repayments, allowing you to repay your mortgage quicker and become mortgage free!
However, some lenders may charge you for overpaying each month, so it is important to check with your lender first. If you are wanting to overpay by a large amount, it is better to switch to a different lender and ensure you aren’t paying more interest than you need to.
Benefit #4: Borrow more money
Some people choose to use their remortgage to access extra cash, therefore increasing the overall size of their mortgage. Depending on how you are using this additional money, this can impact how much the lender will allow you to borrow.
A common use for borrowing more is for home improvements. We have a quick home improvement calculator that works out how much your renovation will cost and get your ideas flowing!
Benefit #5: Get better control over your finances and adapt to life events
Sometimes you may need more flexibility with your mortgage due to an increase or decrease in your income. A change in your income can impact how much you can pay each month, so remortgaging might be your best option.
An example of a wraparound extension, made possible through a remortgage.
What are the disadvantages?
Disadvantage #1: Eligibility
Sometimes you may not be eligible to remortgage with some lenders due to your debt to income ratio. It is always best to reduce any outstanding debts you may have before remortgaging.
Disadvantage #2: Fees and costs
There are many fees involved with remortgaging such as: valuation fee, booking fee, agreement fee, etc. As well as this, you may have to pay an early repayment charge if you are leaving your current deal early.
If you are wanting to stretch your mortgage over a longer period of time this can also incur higher interest rates, meaning the overall cost increases over time. It is best to speak to a mortgage adviser to see if remortgaging will cost you more than it is worth!
Disadvantage #3: Potential financial stress
It can cause more financial stress if you are borrowing more than you can afford. Borrowing more will result in larger monthly payments, so it is important to look at your financial situation as a whole and take all costs into consideration. This will help to ensure you can afford your repayments and your usual bills.
When should I remortgage?
Remortgaging is most often the best option when your current deal is ending, however, there may be other reasons you are looking into remortgaging.
Your current deal is about to end
When your current deal comes to an end your lender will put you on its standard variable rate (SVR), this is likely to be higher than your old interest rate.
If your current deal is about to end it is best to look to see if other lenders can offer you a better deal or possibly a different deal with the same lender.
Your house price has gone up
If the value of your current property has risen rapidly since you last took out your mortgage, you may find you are eligible for much lower rates, meaning lower monthly repayments. This can be worth looking into and ensuring you aren’t paying more than you need to.
You want to overpay
You may have a higher paying job or have been gifted some money, meaning you have more disposable income and can afford to pay more on your monthly mortgage repayments. This is great news! However, not all lenders will allow you to overpay so you may want to switch to another lender.
Again, this could mean you have an early repayment charge, we can help advise to help you make a decision.
Switch from interest rate only to repayment mortgage
If you are currently on an interest-only mortgage rate, you may want to change to a repayment mortgage. An interest-only mortgage only covers (surprise) the interest on your mortgage, whereas a repayment mortgage will allow you to pay in full. Your mortgage adviser can help advise on this and ensure it is the right option.
This family can stay carefree, as they remortgaged before their current deal expired.
When should I not remortgage?
Knowing when to remortgage can be hard, especially if you aren’t sure it’s right for you. Here are some situations where switching up your mortgage might be a bad idea…
Your mortgage debt is small
Once your mortgage loan has fallen to a certain amount it is best not to remortgage. This is because you are less likely to make a saving due to the remortgage fees you will need to pay.
Your early repayment charge is large
Coming out of your current mortgage deal early can come with a large repayment charge, making you rethink your decisions. Occasionally, lenders may waive this charge if you are staying with them, but it is always best to check. A product transfer could be a better option, this means staying with your current lender but changing to a deal that’s right for you.
You have little equity or your home value has decreased
If you currently owe more than your property is worth, also known as negative equity, then it can be hard to remortgage your house. We aren’t saying this is impossible, as everyone’s circumstances are different, so it’s always worth speaking with your mortgage adviser to consider all options and have access to a wide variety of lenders.
How to find the right mortgage?
Here are our top tips for finding the right mortgage for your circumstances:
- Give yourself time to research the market
- Don’t stick with your lender just because it's easier, we know it can feel like a chore!
- Use a broker and shop around for the best options. We have access to deals that aren’t available on the high street and can ensure the deal is right for you
- Don’t try to guess your property value
- Prepare your paperwork (it takes time!)
- Don’t forget the associated fees
Whether you want to get a better deal or release equity from your home, a remortgage could be just the answer. However, before making your final decision, it is best to think about all the pros and cons.
Get in touch with our team to explore your mortgage options. We work with over 400 lenders to find the right finance solutions for your home.
- Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
- You may have to pay an early repayment charge to your existing lender if you remortgage.
- Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
- There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1%, but a typical fee is £495.
