Navigating through the intricate web of mortgage types and the certain rates that come with them can be challenging in and of itself, especially if you’re a first-time buyer. A level of confusion is inherent, given that taking out a mortgage is one of the biggest financial commitments you can make. This feeling may then be amplified when your mortgage advisor mentions remortgaging. It pays, however, to be aware of all your options, both for the present and future.
You might be inclined to think that remortgaging is uncommon, but in actual fact remortgages cover around a third of all UK home loans. It’s for this reason that we’ve collaborated with the mortgage experts over at The Mortgage Genie to give you the top reasons why people decide to remortgage their house.
- What is a Remortgage?
- Switching Lender
- Product Transfer
- Reasons to Remortgage
- Better mortgage rates
- Your current mortgage deal is about to end
- Rising interest rates
- Your property’s value has increased
- You want to switch mortgage type
- You want to borrow more
- Equity release
- Debt consolidation
- Change in Circumstances
Remortgaging is when you take out a new mortgage loan on a property that you already own. This allows you to either replace your current mortgage, or borrow money against your property. The process presents you with two options – switching lenders & product transfer.
Switching from your current lender is a fairly straight-forward procedure, just be sure to take into account the time it takes for the valuation and any legal work required to go through. To do this you can either apply by yourself directly, or hire a mortgage broker to handle it for you. This will involve asking your current lender for a mortgage redemption statement, a document which comprises how much you’ll need to pay in order to redeem your mortgage in full, alongside any charges you’ll be liable for.
On the other hand, product transfer is where you remain with your current lender but arrange a new mortgage deal with them. These remortgage types are likewise simply done and typically do not entail a full valuation if the amount borrowed doesn’t change. However, if you were to refinance to borrow more, known as a further advance, this would necessitate a valuation along with eligibility assessments and red taping. Again, speaking with a mortgage broker would clarify your best option.
There are a number of reasons why you might want to remortgage, taking either of the above routes. And, naturally, there are similarly a variety of benefits to be had, whether foremostly financial, personal, or both.
Remortgaging in order to get better mortgage rates is one of, if not the, most popular reasons that people decide to remortgage. You could potentially save thousands of pounds in the long run by significantly reducing your monthly repayments. This is especially relevant today, considering the sharp rise in living costs. You can secure a more competitive deal with both your current lender or by switching to another.
Keep in mind, however, that if you’re still tied to your initial deal then you may have to pay an early repayment charge, measured at around 2-5% of your outstanding loan. Moreover, there’ll be an exit fee to pay. Albeit, long-term savings could account for such payments.
If it’s the case that your mortgage deal is about to end then you’re going to have to secure another deal either way. This is because the most desirable mortgage deals generally only last between 2-5 years, coming with discounts & fixed rates. When this initial deal comes to its natural conclusion you’ll be put on that lender’s standard variable rate (SVR) which means substantially higher interest rates. It’s therefore best to window-shop 3-6 months prior to when your current rates end so that you’re not stuck paying higher fees unnecessarily.
If you’re on a variable rate or tracker mortgage then you’ll be directly affected by rising base interest rates. The Bank of England has already increased their rates this year (2022) and further hikes are a possibility in the future. If you have concerns regarding this then it’s probably a good idea to seek out a fixed rate mortgage so that you have a sense of security surrounding the cost of your monthly repayments.
Whether it’s down to renovations you’ve made to your property or the fact that housing prices in Britain have grown recently, your home may now be worth a lot more than what you initially bought it for. Consequently, you might now be in a lower loan-to-value (LTV) band and so eligible for considerably lower rates.
If you’re thinking about switching from an interest-only to a repayment mortgage then this is entirely possible. Moreover, it typically doesn’t even require that you remortgage, rather, your lender can easily do this for you. It may also be that you have the option to retain some of the loans on your interest-only deal and exchange a portion of it to capital repayment. Know, however, that changing from a capital repayment mortgage to interest-only is quite a bit harder, your lender will often be a bit reluctant to OK this.
If you’ve found yourself in a rough financial spot or think you’d generally benefit from a cash injection then borrowing more is always an option. The crux is that your current lender might not be willing to finance this, forcing you to remortgage with a new lender. The likelihood that your new lender will provide some extra cash is dependent on how you’re going to use it. For instance, if you’re going to use the money to fund home renovations then that is a lot safer for them as opposed to if you were to use it for a business investment. And of course, providing evidence will heavily back your application for a further advance.
Equity is the difference between your property’s value and the amount you’ve already paid off on your mortgage for it. If the value is relatively small then it could be a good idea to release this equity before remortgaging to a competitive rate if your mortgage deal is nearing its end. This could provide the means to finance a business venture or the purchase of a second property, the latter perhaps proving to be a good long-term investment if you decide to rent it out.
If you go through with this, bear in mind that you’ll be repaying this equity amount over the remaining time left in your mortgage term. So, make sure that it is spent wisely or it could come at your financial expense.
A lot of people remortgage so as to raise money to clear any outstanding debts that they have, be they short-term loans or credit card debts. If you’re struggling financially then this might be one of the primary ways you’d consider in order to settle what is owed, using your house as security. This is generally advised against, however, since you’ll have to declare the debts to your current lender who may then begin to view you as being high-risk due to any financial mismanagements. You’ll also be paying off this debt for an extended period, possibly leading to long-term losses.
Life can change in a very short space of time whereas the mortgage terms you agreed to do not. If your annual income has increased recently or you’ve paid off some short-term debt then you might be eligible for a wider range of mortgage options. You may now qualify for lower interest rates and added flexibility, for example. A degree of flexibility could be useful if you want payment holidays for travelling or schooling purposes etc.
Inversely, you could be going through a divorce or partnership split with someone who you co-signed the mortgage loan with. In this case, you can either sell the house and pay off the loan, subsequently splitting the profits, or buy/allow your partner to buy the whole property. If you were to end up with the house then you’d naturally have to contact your lender so that they can mark the property down as being in your name only. Take into account that you alone might not fit their criteria, and so you’d have to arrange a new deal with a different lender, provided you pass their affordability check.
In advance of any progress with the mortgage front, we suggest reviewing your Credit File. The easiest way to do this is by using our free tool – Check My File. It’s free for the first 30 days, but you can cancel at any time once you’ve downloaded your report.
We hope that this article has helped in widening your awareness as to why people in England may choose to remortgage. And likewise, shown how you yourself, depending upon your situation, could benefit considerably by doing so.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence