Many things will change during your lifetime, yet what is probably your most significant financial commitment may run for decades without review. Sitting down with a mortgage adviser to discuss your current mortgage and remortgage options could have a significant impact on your finances.
There are lots of reasons that may lead you to consider remortgaging, from as simple as switching to another lender to a more suitable product, to releasing equity. If you’re thinking of remortgaging, or you’re not sure what a remortgage is or why you would choose to do it, here are some of the most common reasons.
Your mortgage product is about to end, or already has
You may have taken a mortgage for a 25 year term, but the interest rate during the initial years of the mortgage is usually much lower than for the remainder of the term. For example, your mortgage may have a fixed rate period of five years, and after the five years, you’ll move to the lender’s standard variable rate (SVR). You’ll stay on this SVR (which is usually higher than the initial interest rate of the deal) until the term of the mortgage ends. Unless you review your mortgage options after this period, your mortgage could be costing you more money than if you chose to switch to another product or remortgaged with another lender.
You’re worried about rising interest rates
It could be time to consider remortgaging if the potential of fluctuating payments doesn’t work for your circumstances. If you’re on a tracker mortgage, or you’re on your lender’s SVR because you still haven’t gotten around to that review, your payments aren’t fixed and your lender could choose to increase the SVR in line with the base rate. Your mortgage is usually one of the largest financial commitments that you’ll have; the potential for this to increase might not be appropriate for your financial situation.
If you’re concerned about not having fixed mortgage payments, speak to an adviser to find out what your options are.
You want to increase your mortgage amount
If you’ve got plenty of equity in your home, you might be considering increasing your mortgage amount to release some cash. People often choose to do this for reasons such as significant home improvements and alterations, and occasionally for other reasons such as consolidating other debts to reduce monthly outgoings.
Mortgage lending usually carries a lower interest rate than other types of lending, but your adviser will be able to help you consider other aspects of increasing your mortgage borrowing such as the implications of borrowing more money over a long term, or fees for mortgage products and valuations.
The value of your home has increased
If the value of your home has increased significantly since you first took out your mortgage, you can use the existing equity in your home as a deposit, and you may be eligible for cheaper interest rates.
For example, if you bought your property ten years ago for £100,000 and mortgaged £75,000, you had £25,000 equity in your property, making your mortgage amount 75%. If your property value has gone up to £150,000, and you’ve been repaying your mortgage and there’s now £50,000 left of your mortgage, your mortgage amount is now only 33.3%. The lower the percentage of your property value that is mortgaged (this number is known as Loan To Value, or LTV) the more likely you are to be eligible for cheaper interest rates.
Your adviser will need to check your existing mortgage product for early repayment charges, but they will help you decide if it’s the right time to remortgage for more favourable interest rates to reduce your mortgage payment or reduce your mortgage term.