Should I Remortgage? What you need to consider.

The remortgage conundrum

When you come to the end of your mortgage term or your circumstances change it’s probably time to looking at whether to remortgage and what other options are available.

At it’s most basic term a remortgage is when you apply for a new mortgage with a different lender but stay in your current home.

If you don’t remortgage at the end of your mortgage term your existing lender is likely to move you onto its more expensive variable rate meaning your monthly payments would likely increase.

There’ll normally always be options to move to a cheaper deal with a new lender or you might be able to get a similar deal with your existing lender.

For example, if your property is worth more than when you bought it, your loan-to-value ratio may have changed – and this could mean you have access to a wider range of deals.

Remortgaging can also help raise money for home improvements or a special purchase but it’s worth checking if you’ll be able to afford the amount over the new full mortgage term.

There are numerous benefits such as lower rates, reduced payments and access to equity. But there’s also some pitfalls to watch out for.

Lower Rates

One of the main reasons people remortgage is to secure a lower interest rate. If interest rates have fallen since you took out your original mortgage or if you're eligible for a better rate due to improved creditworthiness, remortgaging can save you money on interest payments.

Reduced Payments 

Lowering your interest rate through remortgaging can lead to reduced monthly mortgage payments, improving your monthly cash flow.

Equity

If your home has increased in value since you purchased it, remortgaging can allow you to access some of that equity. As mentioned, this can be useful for funding home renovations, consolidating debts or other large expenses.

Changing Terms

Remortgaging provides an opportunity to change the terms of your mortgage, such as switching from a variable-rate to a fixed-rate mortgage or extending or shortening the loan term to better suit your financial goals.

Debt Consolidation

If you have high-interest debt, such as credit card debt, remortgaging to consolidate that debt into your mortgage can potentially save you money on interest and simplify your monthly payments.

What To Watch Out For

While the benefits will normally outweigh the downsides there are some considerations that are worth taking into account, not least costs, the potential for any negative equity, the potential impact of a longer mortgage term, rate risks and any change to your credit score.

Costs

Remortgaging typically involves fees such as arrangement fees, valuation fees, legal fees, and early repayment charges if you're still within a fixed-rate period.

These costs can add up and eat into any potential savings from securing a lower interest rate.

Negative Equity

If your home has decreased in value since you purchased it or if you've taken out a large amount of equity, remortgaging could leave you with negative equity, where you owe more on your mortgage than your home is worth.

Longer Mortgage Term

Extending the term of your mortgage through remortgaging could result in paying more interest over the life of the loan, even if you secure a lower interest rate.

Rate Risk

If you switch from a fixed-rate to a variable-rate mortgage, you may be exposed to fluctuations in interest rates, which could lead to higher monthly payments in the future if rates rise.

Credit Score

Applying for a new mortgage can temporarily lower your credit score, especially if you apply with multiple lenders or close your old mortgage account. This could have implications for your ability to access credit in the future.

For more information about remortgaging we have a free Remortgage Guide which can help you understand the process more. If in doubt, please contact one of our experienced financial advisers.

Remortgage Guide

 

 

Consolidating debt may reduce your outgoings now, but you may end up paying more overall. Your home may be repossessed if you do not keep up repayments on your mortgage.