Very rarely do you take out a mortgage and stick with the same one for the whole term – i.e. 30 years – until it’s all paid off and you’re mortgage-free (oh, the dream!). Instead, it’s much more likely you’ll find yourself looking to remortgage to take advantage of a new deal to suit your needs and current budget.
Each household is different and there are various reasons why you might look to remortgage. Perhaps you want to borrow more money, or maybe you’ve seen a better rate that you’d like to switch to.
The interest rate has dropped from 0.25% to 0.1% so there could be an opportunity for you to save money by remortgaging. Just be aware that sometimes, the lender will ask you to pay an early repayment charge before you can switch. It’s important to weigh up the price of the early repayment charge (sometimes referred to as exit fee or admin fee) against the costs you’ll be saving with the lower interest rate.
Your current fixed deal is up for renewal
If you took out a fixed rate mortgage where you pay the same amount every month and the interest rate remains the same, once the initial term has ended (it would have been 2,3,5 years), you’ll fall onto a standard variable rate (SVR) where you could end up paying a higher interest rate than you were previously. This is usually the time when you might look to remortgage in order to switch to a better mortgage deal.
You want to move from interest-only to repayment
Perhaps you’re on an interest only mortgage and you want to move to a repayment mortgage. Generally speaking, your lender should be able to change this for you without the need to remortgage but if they can’t offer you the deal you want, then you might consider a full remortgage.
You want to make overpayments
You might have a higher paying job now than you did when you took out your mortgage, meaning you now have more disposable income and can afford to make overpayments, but perhaps your current lender doesn’t allow you to. Therefore, you might want to look at changing over to a new mortgage with a lender who will allow you to make overpayments.
Borrowing more money
Moving home can cause a lot of upheaval and can be very expensive by the time you’ve paid for all the fees and moving costs. Choosing to stay put and make home improvements can be a cost-effective way of getting the house you’d like.
In order to cover the cost of the improvements, whether for an extension, loft conversion etc., you might consider remortgaging. Don’t forget to do your research first though and weigh up the pros and cons of paying the early repayment charge, as you might find that a home loan is overall better for you than remortgaging.
Just be aware that your lender will want to know what you intend to use the money for and may ask to see builder’s quotes etc. as evidence.
Do I pay more money when I remortgage?
This depends on the lender, and why you are choosing to remortgage. Sometimes the lender will require you pay an early repayment charge before you switch, which does add to the overall cost of remortgaging. However, this may be offset over time by the lower interest rate you find with a different lender.
For the most part, homeowners tend to remortgage to take advantage of their improved rate as they near the end of a fixed term mortgage deal. This better loan-to-value allows you to make reduced payments over the new mortgage term, and can have a positive impact on your monthly budget.
Do I need to remortgage?
No. Although remortgaging can be useful to help free up money, reduce your monthly bills or help you borrow more money, not everyone needs to remortgage.