Your mortgage is one of the longest and largest financial commitments you will ever have, but it's not set in stone.
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.
These changes mean you can take advantage of current market conditions and potentially find yourself with better payment terms. However, this is a situation where careful homework - and often professional advice – is essential.
We’ve put together a few pointers on what to consider before you decide to remortgage.
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 depend 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 monthly expenses.
Remortgaging also offers some the chance to exchange a little of the equity they’ve built up over the years for a financial lump sum. The potential value of a lump sum payment depends on whether your home has increased in market value since the original purchase, and by how much you’ve increased your equity as part of your initial mortgage plan.
When should I not remortgage?
Remortgaging isn’t for everyone. If you’ve seen a decrease in the value of your home or haven’t 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 for the worse since you first purchased your home, you’re unlikely to secure better terms than you have now.
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, a remortgage deal offers you the chance to release some of your accumulated equity in return for a financial lump sum.
Things to consider
There are several factors to consider when deciding to remortgage, including:
Know what you’re after
Decide what you’re looking for from a new mortgage. Would you like to switch to a fixed-rate deal? Are you keen to borrow more to finance an extension or a new kitchen? Or do you want to pay off some, or all, of your mortgage debt early? There will be a cost attached to many of these, but it may be outweighed by the benefits.
Ask your existing lender
A mortgage is a long-term financial relationship and there is more than money involved.
Once you’ve made the decision to change or re-size your mortgage, ask your existing lender first. This may well work out cheaper, as there’ll often be a fee for switching to another provider’s mortgage.
When to switch
One important consideration is – can you afford to remortgage now?
Lenders will typically charge for termination of your agreement. Known as an early repayment charge, you’ll have to pay your old lender for a portion of the interest they’ll be losing out on.
Some lenders will also charge admin fees for any contractual changes, including booking, valuation and conveyancing costs.
Before you spend any money on advice, it pays to do a quick online calculation of the amount you’ll save if you remortgage – which you can then weigh against the cost of remortgaging.
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.
- 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 interest tends to be higher than other products.
With so much to consider, it’s worth speaking to a broker, such as Norton Finance, who’ll be able to advise you on whether remortgaging is for you. Discover more around remortgages.