Your mortgage is likely to be your biggest expense over the course of your life. So finding a better deal can be very worthwhile.
In fact, getting a new mortgage which has just a 1% lower interest rate compared to your current deal can often equate to thousands of saved pounds in the short term, and tens of thousands in the longer term.
So, your primary motivation for getting a new mortgage (i.e. “remortgaging”) is to put more money in your pocket, which would have otherwise gone towards interest payments. However, whether or not remortgaging is a good idea for you depends on your unique circumstances.
We cannot, unfortunately, cover all of the bases in the article about the ins and outs of remortgaging. However, we can provide some information about when remortgaging might be a good idea to consider:
Reasons to Remortgage
#1 Fears about rising interest rates
At the time of writing, the UK is currently deliberating Brexit options including further extensions following the missed deadline of 29th March 2019.
Property markets across the country have been jittery to say the least, and there is some talk in the press about the Bank of England raising interest rates later in 2019.
Of course, no one knows for certain what effect Brexit will have on the UK housing market. Interest rates could remain steady in an attempt to provide stability to the wider economy. However, if interest rates do rise then naturally that could have an impact on your mortgage payments.
If you are on a variable rate mortgage, for instance, then your mortgage lender might change the amount you are required to pay each month depending on the Bank of England’s base rate. One option might be to remortgage onto a fixed rate deal for the next 2-5 years, in order to ensure that your monthly mortgage payments remain stable as the UK economy navigates through the post-Brexit economic landscape.
However, please do not take this as a recommendation to ditch your current mortgage deal and apply for a new one. Fixed rate mortgages have their own advantages and disadvantages which may or may not make one suitable for your current financial goals and situation. The same applies to variable rate mortgages. Speak to a financial adviser if you are looking for specialist advice on how to plan your financial affairs.
#2 Rising home value
If your property has dramatically gone up in value since you first took out your mortgage, then your loan-to-value band might now be lower. This could mean that you are eligible to ask for a better deal, with a lower interest rate. It’s not a certainty, but it justifies a look!
#3 Overpayments
Have you suddenly found yourself in a position where you have a lot more disposable income – perhaps due to a big pay rise? In these situations, it can be a good idea to consider overpaying your mortgage in order to reduce the loan term and save money on interest payments.
However, some mortgage deals do not allow you to overpay – or if they do, the amount you can overpay is very small. For people in this scenario, remortgaging can be a good idea if your new deal allows you to overpay a decent sum. However, watch out for any charges or exit fees you might face otherwise you could lose out financially.
#4 Your deal is ending
Most mortgage deals last about 2-5 years. Naturally, when your deal is approaching its end then it’s usually a good idea to shop around for a good deal. You are not obliged to stay with your current mortgage lender.
Start looking around at least three months before your mortgage deal is due to expire. If you are on a fixed rate mortgage and allow yourself to drift over the expiry date, then usually you will be put automatically onto the lender’s variable rate. The monthly payments due under this arrangement are usually higher than your payments were under your fixed rate, so beware.
Reasons not to Remortgage
#1 Reduced property value
Sometimes, people take out a mortgage and unfortunately the value of their home goes down – meaning you owe a larger portion of the property value to the lender than you previously thought. In the worst cases, you can end up in negative equity – i.e. you owe more to the lender than the total value of the property. Here, you have little choice but to stay where you are until house prices rise again in your area.
#2 New circumstances
You should be aware that your mortgage options will likely be affected if you have recently become unemployed, or if you have moved from employed work to self-employment. Moreover, if you have experienced credit problems then this can also affect your mortgage applications.
Lenders are now legally required to see evidence of your income when you apply for a mortgage. If you no longer meet their conditions for a remortgage, then you will likely be required to stay on your current deal.
#3 Early repayment charges
Some deals will charge you a lot of money to move out of the deal before your incentive period has ended. Sometimes it can still make sense to move onto a better mortgage deal and take the hit from an early repayment charge, if you will still save money. However, quite often it makes sense to sit tight for a bit and wait until the charges are lower before you move.
#4 You have a good deal already
It could well be that you are already on a fantastic mortgage deal, and you’d be foolish to leap off it. However, don’t allow yourself to settle too much into your current deal. In all likelihood, a better offer will come your way eventually and it can pay off to keep your ear to the ground.
