What is remortgaging?
Your mortgage may be your largest monthly expense and you may be expecting to pay it for many years. But this doesn’t mean you need to stick with the same mortgage throughout. In fact, if you’ll almost certainly be paying over the odds if you do.
When you remortgage, you take out a new mortgage with a new lender. If you take out a new deal with the same lender, it’s called a product transfer. Product transfers are usually a much quicker process but there are some downsides compared to remortgaging, for example you won’t have the same wide choice of lenders to choose from.
There are lots of benefits to remortgaging. For example, if you initially took out a fixed rate mortgage, once the initial period ends – the length of time this period lasts for will depend on how long you fixed for, typically 2, 3 or 5 years – you will roll onto the Standard Variable Rate (SVR). This could be mean paying a higher interest rate than you were before – and therefore mean an increase in your monthly payments. So by switching to a better deal you may be able to make significant savings each month.
Why do people remortgage?
There are a number of reasons why many people choose to remortgage. These include:
- To get a better rate than you are currently on
- If your current fixed deal is coming up for renewal.
- You want to make overpayments and your current lender doesn’t allow it
- To borrow more money, for example for home improvements.
- Wanting to move from an interest-only mortgage to a repayment one
Factors to think about
When you’re considering remortgaging, it’s important to think about a number of things including:
- What are the costs involved in getting a new mortgage? When you remortgage, it’s important to consider the costs involved such as any product fees. Factor these in when you’re looking at deals so that you can compare them properly. An expert adviser can help you work this out.
- Do you need to pay an early repayment charge if you leave your current lender and switch to a new deal? It’s essential that you find this out as if you do need to pay one it could be a significant amount.
- What’s your LTV? Your loan-to-value (LTV) is the size of your mortgage amount, compared to the value of your home. So if you’ve got a £150,000 mortgage and your home is worth £300,000, your LTV is 50%. And the lower your loan-to-value, the more mortgage deals will be available to you. And you’ll typically get access to better rates too. Remember, your LTV may have reduced considerably since you last took out a mortgage if the value of your home has risen since, especially if you’ve been on a repayment mortgage.
- Get prepared: When you apply to remortgage, the lender will perform checks to make sure you can afford the repayments. So make sure your finances are in the best shape possible. And check your credit score – and if there are steps you can take to improve it then do so.
- Get expert advice: With so many deals available, remortgaging can be daunting. If you speak to an exert adviser, they’ll understand the lending criteria of different lenders and can compare mortgage deals to find the right one for you.