When is the right time to remortgage?
If you’re a homeowner, you’ll be no stranger to the stresses and uncertainties of having a mortgage – between ever-rising interest rates and a turbulent economic climate, it’s safe to say that it’s a challenging time to be in the housing market, at any stage of your journey.
At some point during this journey, you’ll naturally reach a point of thinking about remortgaging. Remortgaging refers to a process where a homeowner takes out a new mortgage on a property they already own, and this usually occurs for one of three main reasons:
- A current mortgage deal is about to end
- You want a better rate
- Your property’s value has gone up
You can apply to remortgage your home at any time, but there’s no point in doing so unless there’s tangible financial benefit to come from it. Remortgaging could impact your finances by thousands of pounds every year, so it’s extremely important to make a well-researched decision which has been supported by the guidance of a financial expert.
Needless to say, timing is everything when it comes to remortgaging your home – you should typically be given 6 months’ notice from your lender if your current deal is coming to an end, which can then raise questions about whether you should seek a new deal immediately, or adopt a ‘wait and see’ approach.
In this article, we’ll look at the right time to remortgage your home, when remortgaging should be avoided, and what you need to be considering before setting up a new agreement.
Why are you remortgaging?
There are a number of reasons you may be looking at remortgaging, and there are a variety of options out there for when the time comes. Remortgaging can either be carried out through your current lender, or with a new lender entirely. In any case, the new deal should come with a lower rate of interest, and should be taken out at a time that makes sense.
Here are some of the most common reasons for remortgaging:
My current mortgage term is ending
The most common reason for remortgaging is the ending of a current mortgage deal. If you don’t remortgage after your current deal expires, you’ll be placed on to your lender’s standard variable rate (SVR), which is likely to be significantly higher than the interest rate you would have previously been paying.
As a general rule, you’ll want to start looking for a new deal around three to six months before your current deal ends, which allows you a good amount of time to look for a more favourable interest rate. When a lender offers you a mortgage deal, you usually have between three and six months to accept it, after which point you’ll have to reapply.
In today’s current economic climate, there’s a lot of apprehension around whether to lock in a new deal or wait to see whether the market changes, however, leaving it too late could end up costing you significantly, which is why it’s so important to speak to an expert who can assess what sort of options are available.
I want to release equity
If you’ve been paying off your mortgage for a significant amount of time, there’s a good chance that you’ll have built up a decent amount of equity. Remortgaging could give you access to the cash value of the property, which is a common incentive for people who want to use the cash for home renovations, to start a new business, to provide a deposit for their children, or to help their children through university.
It’s important to remember that remortgaging to release equity isn’t the same as equity release, which is for homeowners over the age of 55 who want access to extra funds during their retirement. Remortgaging to release equity essentially means that you’re taking out a loan to free up cash, rather than having it tied up in your home. This also means that you’re taking on more debt and could potentially be looking at higher repayments, so it’s always a good idea to speak to an expert to establish whether it’s a suitable option for you.
I want more flexibility from my lender
For many people, having a fixed interest rate and a specific monthly repayment provides a sense of stability, but there may be times in life when a flexible mortgage would be more beneficial. A flexible mortgage allows you to make overpayments, underpayments, and take payment breaks to work around your personal circumstances, e.g. changing jobs or going back into education, without incurring additional fees.
Not all lenders will allow you to make overpayments, so a flexible mortgage is a great option for people who want a little more freedom with the amount that they pay each month, particularly if they don’t have a regular or consistent income. Overpayments will ultimately mean that you pay your mortgage back faster and reduce your total interest cost. Since you have the freedom to make changes to your payments, a flexible mortgage will, within the terms of the contract, calculate interest each day rather than each month or year. The upside of this is that if you make an additional repayment, your interest costs will drop immediately, rather than waiting until the next month or year to be recalculated.
Since there are a number of flexible mortgages on the market and they don’t all offer the same features, it’s important to do your research before signing up for a new deal.
My property value has increased
An increase in property prices can be good news if you’re thinking about remortgaging. Rising property prices often mean a better loan-to-value (LTV) ratio, which is one of the measures lenders use to calculate how much you can borrow and what sort of deals you’ll be eligible for. The reason this works in your favour is because many of the best remortgage deals tend to be available to people with lower LTVs, so if the value of your property has risen significantly since taking out your mortgage, you may find that you’re now in a lower LTV band and therefore eligible for lower interest rates. The additional benefit to this is that if you take out a new mortgage with a lower interest rate but continue to pay the same monthly amount, you’ll be able to pay your mortgage off sooner.
Should I remortgage now or later?
If you’re coming to the end of your current mortgage deal, you may be facing the dilemma of whether or not to lock in a new deal early on or wait to see what sort of changes occur in the market. A vast majority of mortgages in the UK are on fixed rates, which means that millions of people still haven’t had to face the horrors of rising interest rates. With over a million fixed deals set to end this year, many homeowners will be faced with questions around the best way to approach their remortgage.
The benefits of locking in a deal early
- If interest rates rise, you will have locked in a good deal in time. Mortgage offers are typically valid for six months, so you could lock in a competitive deal months before your existing deal comes to an end.
- You can keep looking at other deals until yours officially comes to an end. This means that if a better deal comes along within that time, you can opt for the one with the best saving.
- You can speak with new lenders and ask a mortgage expert to assess your options without the need to rush, reducing the stress of finding a new deal and facing less uncertainty when your current deal comes to an end.
The risks of locking in a deal early
- The main risk with locking in a new deal early – whether with your current lender or a new one – is paying a fee upfront to secure the rate. The two most common fees are a booking fee and a product fee (also known as an arrangement fee). The booking fee can range from £200-£300, while the product fee is typically £1000+. When you work with Lendese, we can typically ensure that these fees are refunded if we change the deal or lender, but it’s worth remembering that the fees won’t be refundable once the mortgage completes and goes live.
- To add to the above, there’s always a risk that you’ll lock in a new deal early and then a better deal will emerge further down the line. If rates do improve in the months after you’ve locked in a new deal, you’ll find that it would have been more beneficial to wait than to pay to secure a rate in advance. When you work with Lendese, we’ll continue to review your options even after the application has gone in, and will always take the steps to get you to the best deal.
- If you apply for a new deal too early, the deal you locked in may actually end up expiring by the time your current deal ends. At Lendese, we’ll make sure your application is always timed to perfection, to avoid any stress further down the line.
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:
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.
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.
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.
