As a homeowner, you’re likely familiar with the stress and uncertainty that can come with managing a mortgage. With rising interest rates and a turbulent economic climate, navigating the housing market can feel challenging at any stage. At some point, you may start thinking about remortgaging, which could be a strategic move to improve your financial situation.
What is Remortgaging?
Remortgaging is the process of switching your existing mortgage to a new one, either with your current lender or a different one, without moving home. Homeowners typically do this to get a better interest rate, access equity (cash tied up in the property), or change the mortgage’s terms. It’s essentially a way to replace your current mortgage with a new one, often to save money or achieve other financial goals.
When is the Best Time to Remortgage?
The best time to remortgage depends on your specific situation, but typically, it’s a good idea to start exploring your options 3-6 months before your current mortgage deal ends. This gives you time to secure a new deal before being moved to your lender’s standard variable rate, which is usually higher. Additionally, if interest rates are rising or your property value has increased, remortgaging earlier may help you secure a better deal. It’s important to consider the market, your financial goals, and the terms of your current mortgage.
Why are you Remortgaging?
There are several reasons to consider remortgaging, whether it’s to save money, unlock equity, or gain more flexibility. Remortgaging can be done with your current lender or a new one, but the goal is often to secure a better deal that suits your needs. Let’s take a look at 4 common reasons people remortgage.
4 Common Reasons People Choose to Remortgage
1. Your Mortgage Term is Ending
The most common reason for remortgaging is when your current mortgage deal ends. If you don’t remortgage, your lender will likely move you to a higher standard variable rate (SVR). To avoid this, start looking for a new deal 3-6 months before your term ends. This gives you time to lock in a better rate without rushing or missing out on better options. Consulting with an expert during this process is crucial, especially in a fluctuating economic climate.
2. You Want to Release equity
If you’ve built up equity in your home, remortgaging can give you access to that cash, which could be used for home renovations, starting a business, or supporting family members. However, be aware that remortgaging for equity means taking on more debt, so it’s important to assess the long-term impact on your finances.
3. You Need More Flexibility
A flexible mortgage might be a good option if your financial circumstances change. Unlike traditional fixed-rate mortgages, flexible mortgages allow overpayments, underpayments, or payment holidays without extra fees. This is useful for those with variable incomes or changing life situations. It’s important to compare flexible mortgage options, as not all lenders offer the same terms.
4. Your Property Value Has Increased
If your property’s value has gone up, you might benefit from a lower loan-to-value (LTV) ratio, making you eligible for better deals with lower interest rates. By remortgaging, you can potentially lower your monthly payments or pay off your mortgage sooner by continuing to make the same payments at a lower interest rate.
Should I Remortgage Now or Later?
If your current mortgage deal is coming to an end, deciding whether to lock in a new deal now or wait can feel daunting. Here’s what to consider:
Benefits of Locking in Early:
- Protection from Rate Hikes: Securing a deal now protects you if interest rates rise.
- 6-Month Window: Mortgage offers are valid for 6 months, allowing you time to explore other options.
- Less Pressure: Locking in early reduces the last-minute stress of finding a new deal.
Risks of Locking in Early:
- Fees: Booking and product fees can range from £200-£1,000+ and might not be refundable after completion.
- Missed Opportunities: If rates drop after you’ve secured a deal, you could miss out on savings.
- Expiry Risk: Locking in too early may lead to your deal expiring before your current one ends.
Carefully weigh the current market, your financial situation, and expert advice to time your remortgage optimally
3 signs remortgaging isn’t the right option
There’s definitely no ‘one size fits all’ when it comes to remortgaging, and it largely depends on the personal circumstances of each individual. In certain cases, remortgaging could actually come with more disadvantages than benefits. Here’s why it may not be the best option for you:
1. You don’t owe much more on your property
If your remaining mortgage debt is really low, there’s a chance that a lender won’t even be willing to offer you a new deal – in fact, many lenders won’t take on a mortgage below £25,000. The smaller your mortgage, the less likely you are to make a saving by switching deals; particularly if the fees are high. In some cases, you could end up paying more in fees than what you actually have left to pay off, so it’s worth sticking with the higher interest rate.
2. Your credit rating isn’t in good shape
Lenders are required to be very careful about who they lend to, and will run a series of checks to make sure a mortgage is affordable, not just at current rates, but if they rise too. They need to ensure that you could financially cope if interest rates were to rise, so they’ll ask for a great level of detail about your outgoings and will want to see clear evidence that you can handle debts well. If you’ve recently missed any payments – even if it’s as small as a phone bill – it will have had a negative impact on your credit score and could therefore make it more difficult to secure a new mortgage deal; learn more about how to get a mortgage with bad credit from us.
3. Your property is in negative equity
If the value of your property has dropped below your outstanding mortgage debt, you’ll have what’s referred to as ‘negative equity’. Most lenders won’t allow you to change mortgages while you’re in negative equity, since you now owe more than the property is worth. If you take out a new mortgage during this time, you’ll typically be moved onto the lender’s standard variable rate (SVR) and find yourself being stung by far higher interest rates until your property goes up in value.
Talk to our financial experts
Remortgaging your home is one of the biggest financial decisions you’ll ever make, and with the turbulence of today’s market, it’s crucial to understand all of the options available to you so that you can make the best decision for the future. If your current mortgage deal is coming to an end and you need a little help with next steps, get in touch for a no fee, no obligation consultation with a Lendese expert.
