There are many reasons for choosing to remortgage, but how do you know when the time is right to switch? We take a look at what to consider before making the final decision.
Remortgaging your property is one way to potentially save money, especially where your mortgage takes up a substantial amount of your monthly budget. If you feel you are paying too much for your mortgage, finding a competitive new deal could certainly help to reduce your monthly payments. With ongoing financial uncertainty there is some questions over when would be the best time to remortgage, so we have highlighted some areas to think about when making the choice.
How long remains on your current mortgage deal?
If you are tied into a deal, consider all the fees and penalties first to decide whether a remortgage before the end of the term is a good idea. Often large early repayment charges at 2-5% of your outstanding loan, plus the exit fee, may outweigh any potential savings from remortgaging. Read your contract, do your homework and think about if it is worth leaving early. If your existing deal has ended, you may now find yourself on a standard variable rate (SVR) with a higher interest rate, so you could benefit from substantial savings by seeking out a more competitive deal.
Are the fees for switching affordable?
In the long-term it may make sense to remortgage, but can you afford to do it now? The fees for switching can run into the thousands, so compare the savings made on repayments against the cost of the switch to see what works for you. A new lender may offer to cover the fees of a previous deal, but you will need to account for the solicitor conveyancing fees for the transaction, and potentially mortgage broker fees too. Calculate the amount you will save by remortgaging and set that against the costs to determine whether the fees for switching are affordable.
What is happening with the BoE base rate?
The Bank of England cut the Bank Rate to 0.25% in 2016 following the EU Referendum amidst fears of an economic shock, and it has remained at this rate ever since. Current forecasts anticipate no change for 2017, but estimate that it could reach 3% by the end of 2019, and eventually pre-recession levels of 5%. If interest rates rise, then delaying a switch to a fixed rate deal could mean paying more money later on. Now may be the best time for remortgaging before the Bank of England base rate begins to rise once more, and the best deals run out.
What are you spending it on?
Before you take the plunge and remortgage your home, consider what you will be spending that saved money on. The savviest approach would be to re-invest the extra cash in some way. For example, once you have freed up some funds, use them to make home improvements. This way, you are adding more value to your home and investing that extra cash wisely.
There is a lot to consider before you decide whether to remortgage a property, and not least is making sure that you compare all the costs involved against the benefits to ensure a sensible financial decision. Take the time to explore all the possibilities and advice available to you if you are considering doing so, as a mortgage is a long-term financial commitment. Seek professional advice for guidance and do your homework to make sure that the benefits outweigh the costs involved.