People consider remortgaging for a variety of reasons, including having the chance to secure lower repayment terms than their current deal, and releasing equity from their property as a lump sum for another purpose. Whether buying a second home, starting a business or paying for university tuition, remortgaging can be a means of freeing up the necessary funds to turn your plans into reality.
It’s worth considering remortgaging if the value of your home has increased since your purchase, or if you’ve managed to repay a sizeable portion of your existing agreement. These changes mean you can take advantage of current market conditions and potentially find yourself with better payment terms.
Should I remortgage?
Those looking to release equity or renegotiate their payment structure may want to consider remortgaging. Though there are several potential benefits to doing so, it isn’t always for everyone and any outcomes are dependent on your current financial situation.
To remortgage your property is to effectively agree a new payment plan, replacing your existing mortgage with fresh terms. For many, this means they’ll have the chance of securing a better deal with a more favourable payment structure or interest rate, both of which could reduce their monthly expenses.
In addition to securing better terms, remortgaging offers some the chance to exchange a little of the equity they’ve built up over the years for a financial lump sum – funds which can then be used on home improvements or be put towards larger expenses, such as a wedding or new car purchase. Should you need fast access to money, remortgaging your home could be the right choice for you.
The potential value of a lump sum payment is dependent on whether your home has increased in market value since the original purchase, and how much you’ve increased your equity by as part of your initial mortgage plan. Homeowners with an increase in value or those who’ve managed to pay off a reasonable amount of their mortgage are more likely to be able to access the potential benefits.
When should I not remortgage?
Remortgaging isn’t for everyone. If you’ve seen a decrease in the value of your home or have not repaid much of your mortgage value since the initial purchase – if you’re on an interest only plan, for example, remortgaging could in fact raise your monthly repayments. Additionally, in looking to borrow a lump sum against a house that has decreased in value, you’ll end up paying more than your house is worth over time – leaving you out of pocket.
Just as it was on your initial mortgage application, remortgage offers are also dependent on your current financial situation. New lenders will consider your salary, employment status and credit score. So, if your circumstances have changed negatively since you first purchased your home, you’re unlikely to secure better terms than you have now.
Things to consider
There are several factors to consider when deciding to remortgage. Lenders will typically charge for termination of your agreement. Known as an early repayment charge, you’ll have to pay your old lender for the interest they’ll be losing out on by your switch elsewhere.
Some lenders will also charge admin fees for any contractual changes, including booking, valuation and conveyancing costs – it’s important to consider whether you can afford to pay these too before making any decisions on the future of your property.
If you’re borrowing for equity release, then you’ll be increasing the amount you owe over time, so it’s important to factor in whether you can afford to pay back any one-off fees or an extension of your repayment contract.
Are remortgages different from mortgages?
Remortgages are effectively just the same as regular mortgages. They are a means of agreeing new repayment terms on your property. However, unlike mortgages, which are an agreement between yourself and a lender to borrow money to pay for your property, a remortgage deal offers you the chance to release some of your accumulated equity in return for a financial lump sum.
Different types of remortgage products
There are many remortgage products on the market, all suitable for different needs and requirements, including:
- Fixed-rate mortgages – These are an agreement between you and the lender to pay back at a defined rate over a set period of time.
- Tracker mortgages – These repayment plans track the Bank of England’s base rates, meaning that you could pay more or less interest over time, dependent on market fluctuations.
- Variable-rate mortgages – These are like tracker mortgages, but the interest rate is set individually by the lender. Rates are typically around 2% higher than the Bank of England’s base figure.
- Capped or Collared mortgages – Again, the interest on these mortgages fluctuates with the market, but have defined floor and ceiling rates, meaning you’ll never pay more or less than the agreed figures.
- Discount mortgages – These will typically start at a decreased rate for the first few years before reverting to terms similar to tracker or variable-rate mortgages.
- Flexible mortgages – These allow for a borrower to overpay or underpay on the agreed amount, but rates and interest tend to be higher than other products.
Remortgaging can be an effective way to free up funds for life’s larger expenses or secure yourself a better rate. However, with so much to consider, it’s worth speaking to a broker, such as Norton Finance, who’ll be able to advise you on next steps and whether remortgaging is for you.
Discover more around loans and remortgages with Norton Finance.