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When should I remortgage?

Remortgaging is taking out a new mortgage on a property you already own. This is usually done to reduce your monthly payments by switching to a cheaper interest rate or to free up some extra cash using the equity in your home. Whatever your reason for wanting to remortgage, however, timing is everything. We’ll look at when remortgaging is most beneficial, and when it may be best to avoid remortgaging for the time being.
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A wooden desk has the following items strewn on it: a calculator, some bank notes, a key, a diary and a notepad with the word 'Remortgage' hand written in bold black ink

Compare remortgaging mortgages

Compare mortgages for home owners thinking about getting a new mortgage

Why should I remortgage?

Remortgaging gives you the opportunity to switch mortgage deals to one that is more suited to your needs, whether that’s one with lower interest rates, more flexible terms, or both. You can also remortgage to increase your borrowing, either when moving to a more expensive property, or simply to make use of the equity built up in your home. 

To make the best of your remortgage options, timing is absolutely essential, so it’s important to understand when is a good time to remortgage, based on your current circumstances.

When is the best time to remortgage?

If any of the following scenarios apply to you, then now is the ideal time to compare the remortgage options available to you:

  • Your current fixed-rate mortgage deal or introductory rate is about to end - If you don’t remortgage and your current deal expires, you will end up on the lender’s standard variable rate (SVR) which is likely to be higher

  • You’ve seen a better interest rate available elsewhere - If your current deal has not yet ended you’ll need to weigh up whether the early repayment charges (ERCs) to leave the deal and fees involved with remortgaging will outweigh the benefits of the lower rate. If you’re within the last six months of the deal, however, you can typically lock the new rate now. If you’re on your lender’s standard variable rate (SVR) already, you won’t have any ERCs to worry about

  • You’re on a variable rate deal and are concerned about interest rate rises - this can be a difficult judgement call, because it will depend on how much and how often rates are expected to rise. If you’re concerned about this generally, you may be better switching to a fixed-rate deal, however, do bear in mind ERCs and remortgage fees when choosing the right option for you

  • You want to borrow more money - sometimes remortgaging can be a good way to borrow additional funds for things like home improvements, a large purchase, such as a car, or to consolidate other debts. You use the equity (amount you already own) in your home to secure the borrowing, and this often allows you to access a larger amount than you could get with a credit card or loan. Bear in mind that this is not always the cheapest form of borrowing, however

  • Your equity has grown significantly - If the price of your property has risen considerably since you bought your home, your equity will have increased. This means that the loan to value (LTV) of your borrowing will have decreased. A lower LTV can give you access to much better interest rates, so it’s certainly worth seeing how much impact the added value on your home can have on your mortgage repayment costs

  • You want more flexible features - If your existing mortgage deal has strict terms regarding overpayment, but you’d like to try to repay more quickly, you might want to switch to a deal that allows you to overpay without incurring fees. There are also other flexible mortgage features that may be attractive to you if you don’t already have them, such as the ability to take a payment holiday or offset your savings against the interest

Should I remortgage to change from an interest-only to a repayment mortgage?

Most lenders will allow you to change from an interest-only to a repayment mortgage without the need to remortgage, as the vast majority of deals will accommodate both repayment methods.

Some lenders may even be able to change your payments to part and part, which is where you repay some of your mortgage as interest-only and some as capital repayment. 

If you wanted to switch in the opposite direction from repayment to interest-only, most lenders would be less comfortable with this, unless it was a temporary change, or you were able to provide a robust repayment plan for the remaining lump sum of capital (money you borrowed) at the end of the term.

When should I avoid remortgaging?

There are also times where remortgaging are unlikely to provide you with the benefits you’re looking for, or may not even be possible. If any of the following apply to you, then remortgaging may not be the best immediate option:

  • Your mortgage debt is small - typically if you have less than £50,000 remaining to repay on your mortgage, the remortgage fees would outweigh any potential savings you could make with a lower interest rate. It’s worth checking with a broker though, before you rule it out completely.

  • There are large ERCs on your deal - if you’re not near the end of your existing deal and the early repayment charges to leave are high, then it’s probably not going to be worth your while remortgaging until the deal has ended. When you add up the total cost of repaying ERCs (which can be as much as 5% of your outstanding loan balance) and the remortgage fees, it’s unlikely any deals will have low enough interest rates that you would still make any savings by switching

  • Your finances and/credit score have taken a hit - if you have less income, or have got into financial difficulties since you first took out your mortgage, it’s unlikely that you will be able to remortgage onto a better rate, in fact, in some cases you may not be able to remortgage at all, especially if your credit rating has been affected by your financial issues

  • Your home has fallen in value - if the value of your property has fallen since you took out the mortgage then your LTV may have increased, or worse, you could have fallen into negative equity - this is where you owe more than the current value of your home. A higher LTV means that the remortgage rates available to you will almost certainly be higher than what you’re already paying. There are not likely to be any lenders able to offer a remortgage to someone in negative equity

“Some borrowers are willing to pay early repayment charges to break out of their existing deal, in order to secure a long-term fixed-rate now with a competitive rate. However, it’s important to be aware of how much these charges will cost you, as they could amount to thousands of pounds”
Aidan Darrall, Mortgage Expert at Mojo Mortgages

What does remortgaging involve?

Remortgaging simply involves switching your mortgage from one deal to another. This can either be with another lender, or with your existing lender - typically referred to as a product transfer.

When you take out a remortgage, you use the loan to repay your existing mortgage, and then begin repaying your new mortgage, which is hopefully at a lower rate of interest.

Can I remortgage early?

It can be difficult to know when to start the remortgage process, and you can theoretically do this whenever you want to, however, most lenders won’t let you if you’re still within the first six months of buying your property. 

If you’re locked into a fixed-rate period or an introductory rate of any kind, however, it’s less likely that you will save money if you remortgage early. The ERCs involved with remortgaging early together with the standard remortgage fees may cancel out the savings you would make. 

How early can you remortgage? 

The best time to start looking into a remortgage if you’re in a deal with a fixed end date is six to seven months prior to that end date. Most lenders would get in touch with you during this period anyway, but it’s a good idea to put the date in your calendar. 

What are the benefits of remortgaging early

Mortgage offers are typically valid for six months, which means you could lock a competitive deal in place months before your existing one ends, which you will then transfer onto when it eventually does end.

The best thing is, you’re not even locked into that deal until your existing deal ends, so if a better deal should come along within that time frame, you can go for the greater saving.

How often can you remortgage?

You can remortgage as many times as you would like, but bear in mind that there are costs involved each time you do. Even if you don’t have any ERCs to pay, there will always be the typical costs involved in taking out a mortgage, such as the arrangement fee, valuation and legal costs. Whilst some deals offer certain incentives such as free valuations on a remortgage, it’s unusual to remortgage without paying any fees at all. 

Aside from the fact that you will only benefit if you remortgage to a better rate than the one you’re currently on, if you remortgage every two years over a 25 year mortgage term, there will come a point where the fees you've paid are likely to outweigh any benefits you will have gained from locking in lower interest rates.

What are the fees associated with remortgaging early?

Early repayment chargec or ERCs are payable if you remortgage before your existing deal has ended. These should be outlined in your mortgage terms and conditions, but can be very costly and are usually charged at a percentage of your outstanding balance. 

The percentage of ERCs you pay tends to reduce the closer you are to the end of the term.

For example: If you have a 10 year fixed-rate deal and leave with nine years remaining, the ERCs are going to be very high. If you are on a two year fixed-rate deal and are 12 months in, the ERCs might not be too high, depending on the individual deal.

Good to know: Some lenders also change an exit fee, which typically applies whether or not you leave the deal early. If you do leave early, you could, therefore, end up paying both.

Should you remortgage with your existing bank or switch to a new lender?

It depends which one is offering the type of deal you’re looking for. It can certainly be quicker and easier to do a product transfer with your existing lender, however, if another lender is offering lower interest rates or better flexible features, then it may be worth moving to them. 

This can be a tough decision, as it will depend on your circumstances and the deals that are available at the time, but a mortgage broker will be able to help you make an informed decision. 

Advantages and Disadvantages of remortgaging

The pros and cons of remortgaging will apply to you differently depending on your circumstances, but generally they include:

  • You can save money by reducing your interest rate

  • You can switch to a deal that gives you greater peace of mind, perhaps a fixed-rate, for example if you want more certainty

  • You could borrow more money

  • You may have the option to extend or reduce you existing mortgage term to suit your needs

  • The cost of remortgaging sometimes outweighs the benefits

  • Not everyone will be eligible for a better rate of interest, or to remortgage at all - it’s treated as a new application, so can be difficult if your circumstances have declined

  • It can be cheaper to borrow money with a traditional loan - even though the interest rate may be higher on a loan, the repayment period is typically shorter than a mortgage term, meaning you could still pay more interest overall by borrowing more on your mortgage

Kellie Steedquotation mark

Timing is crucial when it comes to remortgaging, as the potential benefits will vary depending on your circumstances and why you're remortgaging. In some cases locking in a deal now is the right move, whereas sometimes you may benefit from waiting. A broker will be able to help you determine when to remortgage to gain the maximum benefit for you.”

Kellie Steed, Mortgage Content Writer

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