Paying off your existing mortgage with a new one can offer flexibility, a better deal on your monthly repayments or an opportunity to consolidate your debts.
Remortgaging can save you thousands of pounds, but deciding whether a remortgage is right for you comes down to your personal circumstances.
With interest rates fluctuating, you may wish to consider remortgaging with a variable rate tracker mortgage plan, or move onto a fixed rate mortgage for stability. If you’re not sure which is best for you, read our guide to fixed rate and variable rate mortgages or see below for a brief overview of the main differences.
Remortgaging for a better deal and to save money on your monthly repayments is one of the more common reasons to remortgage your property.
Typically when you've gone two to five years into your mortgage, or the length of the introductory offer, it’s worth shopping around for a better deal.
The great offers you get on your first mortgage deal don’t last forever and are usually there to reel you in for the long haul. However, switching to a remortgage deal could also cost you, unless the provider is offering you a fee-free deal. If you switch during your introductory period, you will likely have to pay an early exit fee along with the legal costs and a survey.
If you’ve already paid off the bulk of your mortgage then it may not be worth paying for a remortgaging deal as the savings you make will struggle to cover the cost of the switching fees.
To help yourself save money, compare the annual percentage rate (APR) between your current mortgage and other remortgage deals on the market, then assess whether or not this will better the costs. You will normally have to pay a mortgage exit fee if you remortgage, but the savings could be worth it.
Improving the remortgage offers you’re likely to be accepted for comes down to your personal circumstances and the loan-to-value (LTV) you apply for. The less you need to borrow, the more likely that better deals will become available to you.
It’s worth bearing in mind that the new mortgage provider you switch to will need to value your property, so be prepared to research the local house prices and make a note of any home improvements you’ve made, just in case they come back to you with a lower than expected estimate.
You may be wondering whether you can remortgage to pay off debts. While mortgages will offer far lower interest rates than credit cards and an improvement on personal loan rates, that doesn’t necessarily mean that a debt consolidation remortgage will save you money.
This is because you’re more likely to be paying off your mortgage for a longer period than your other debts, so as a result you will be more likely to pay much more in interest. For example, if you have debts of £5,000 and remortgage with 4% interest over 20 years, you will pay just over £4,000 extra in interest.
However, if you pay back the same amount with a much higher 18% interest, over three years directly to your credit card provider, you will pay just over £2,700 extra in interest.
So in some cases, a credit card will be better at handling your debt than a remortgage deal.
Moreover, you may also put your home in jeopardy, as it will be secured against the debts on your credit cards and loans, as well as your mortgage.
In essence, avoid remortgaging for debt consolidation and see if you can pay off your existing debts separately instead.
Once you've figured out what you need your remortgage deal for, be it debt consolidation, saving money, or releasing equity, then it's time to decide what type of remortgage you need.
The mortgage type you choose will affect how well the remortgage deal works in your favour. If you can afford to take the risk then a tracker mortgage could be ideal while rates are low.
If you'd like consistent payments for the next few years, then a fixed rate deal is the safest bet. Meanwhile if you have a lot of savings then overpaying your mortgage each month could save you on interest in the long run.
Fixed rate mortgage: A fixed rate mortgage will fix the interest rate you receive on your remortgage deal for a set period of time, but usually this period is between 2 and 5 years. Such deals can be good if you want the security of knowing what your monthly repayments will be.
However make sure to think carefully about when you fix your mortgage rate, as fixing when rates are high could end up with you paying a higher interest rate then you need to.
Tracker mortgage: Unlike a fixed rate mortgage, a tracker mortgage will set your remortgage deal interest rate a percentage above the Bank of England's base rate or above the lender's standard variable rate.
This means that if the Bank of England's base rate goes up or down, then this will affect the rate you pay. If you expect the bank rate to go down then you could be getting a good deal, but if it goes up then you could be risking higher monthly repayments.
Offset mortgage: With an offset mortgage, your mortgage and savings account are combined, and the money you have in your savings account is counted as a temporary overpayment towards your mortgage, which could save you thousands in interest. As with a standard mortgage, you can get discounted, fixed and tracker offset mortgages.
You'll need to work out the best type of mortgage for you, what you can afford and what risk you're willing to take with your finances in order to get a better deal.
Whatever happens, it’s good to shop around the market even if you’re not looking to remortgage your property immediately. It takes around one month for a remortgaging deal to go through, so it's a good idea to be ready for it.