Remortgaging: Switching your Mortgage

What You Need to Know Before Switching Your Mortgage

When your current mortgage deal is coming to an end, or if you’re simply looking for a better rate or more flexibility, remortgaging can be a smart financial move. Remortgaging refers to the process of switching from your existing mortgage to a new one, either with your current lender or a new provider. The key reason most people consider remortgaging is to save money by securing a lower interest rate, but there are other factors that come into play which might make this decision beneficial for you.

In this comprehensive guide, we’ll walk you through everything you need to know about remortgaging. From understanding the best time to remortgage to weighing the potential costs and benefits, this article will help you navigate the process with confidence and make sure you’re well-informed about your options.

What is Remortgaging and How Does It Work?

• Remortgaging is essentially the process of taking out a new mortgage to pay off your existing one. You might decide to remortgage with the same lender, in which case it’s called a product transfer, or switch to a completely new lender, which is referred to as a remortgage.

• It’s important to understand that you’re not moving homes when you remortgage. You are simply replacing your old mortgage with a new one that better fits your financial situation or goals. Remortgaging can help you secure a better interest rate, release equity in your home, or consolidate debts by combining them into your mortgage.

Why Do People Remortgage?

• Securing a better interest rate: One of the most common reasons for remortgaging is to switch to a deal with a lower interest rate, especially if your current deal is coming to an end or you’re on your lender’s standard variable rate (SVR), which is usually much higher than fixed or tracker rates.

• Home improvements or large expenses: Some homeowners opt to remortgage in order to release equity from their property, giving them a lump sum of cash that can be used for significant expenses like home improvements, paying for education, or even funding a new business venture.

• Consolidating debt: Another reason to remortgage is to consolidate other debts, such as credit cards or personal loans, into your mortgage. This can simplify your monthly payments and potentially reduce your overall interest rates, though it’s important to be aware that this means spreading the cost of those debts over a longer period, which could end up being more expensive in the long run.

When Should You Consider Remortgaging?

Timing is crucial when it comes to remortgaging. If you remortgage too early, you might face early repayment charges (ERCs) from your current lender, which could negate any potential savings from a better rate. On the other hand, waiting too long to remortgage could leave you stuck on a high-interest SVR once your fixed or tracker deal ends.

• As your current deal nears its end: Most fixed-term mortgage deals last for two to five years. It’s usually a good idea to start looking for a new deal around three to six months before your current deal expires. This gives you enough time to compare offers and lock in a rate before you’re automatically switched to your lender’s SVR.

• If interest rates are predicted to rise: If interest rates are expected to increase, remortgaging early can help you lock in a lower rate before the hikes take effect. However, if interest rates are expected to fall, it may be worth waiting for a better deal.

What Are the Costs Involved in Remortgaging?

While remortgaging can potentially save you money, it’s important to be aware of the costs involved in the process. These costs may include:

• Early repayment charges (ERCs): If you’re still within the fixed or discounted period of your current mortgage deal, you might have to pay an ERC to your existing lender for paying off your mortgage early.

• Exit fees: Some lenders charge an exit fee, also known as a mortgage completion fee, when you pay off your mortgage.

• Legal fees: If you switch to a new lender, you’ll need a solicitor to handle the legal aspects of the remortgage. Some lenders offer free legal work as part of their remortgage deal, but it’s important to check the details.

• Valuation fees: Your new lender may require a property valuation to ensure the value of your home still supports the loan amount you’re requesting.

Pros and Cons of Remortgaging

Remortgaging can offer several advantages, but it’s not without potential drawbacks. It’s essential to weigh both sides carefully before making your decision.

Pros:

• Lower interest rates: Remortgaging at a lower rate can reduce your monthly payments and save you a significant amount over the term of the mortgage.

• Access to cash: By releasing equity in your home, you can access funds for major expenses or investments.

• Debt consolidation: Simplifying multiple debts into one manageable mortgage payment can make your finances easier to manage.

Cons:

• Fees and charges: As mentioned earlier, remortgaging can come with costs such as early repayment charges and legal fees, which may reduce the savings from a better deal.

• Longer repayment term: If you’re consolidating debts, extending the repayment term could mean paying more in interest over time, even with a lower rate.

• Risk of losing your home: When you consolidate unsecured debts into your mortgage, those debts become secured against your home, meaning you could lose your property if you fail to make the payments.

How to Choose the Best Remortgage Deal

Finding the right remortgage deal requires careful consideration of several factors. You’ll need to assess not just the interest rate, but the overall package to determine what offers the best value.

• Interest rates: The most obvious factor is the interest rate. Fixed rates offer security and peace of mind by locking in your payments, while tracker rates can offer savings if interest rates fall, though they come with more risk.

• Fees: Look beyond the headline rate to consider any fees involved, such as arrangement fees or valuation costs. A low-interest rate might not be as appealing if the fees are high.

• Flexibility: Some remortgage deals offer added flexibility, such as the ability to make overpayments or take payment holidays. Consider whether these features are important to you.

• Lender reputation: Finally, take into account the reputation and customer service of the lender. A competitive rate is important, but you’ll also want a lender that is easy to deal with and has a track record of good service.

Conclusion: Is Remortgaging Right for You?

Remortgaging can be a powerful financial tool, offering the potential to lower your monthly payments, release equity, or simplify your debts. However, it’s important to weigh the costs and benefits carefully before proceeding. Take the time to review your current mortgage, assess the fees involved, and shop around for the best deals. Speaking to a mortgage advisor can also help you make an informed decision and ensure that you’re getting the right remortgage deal for your situation.

If you’re considering remortgaging, Mortgage One Finance is here to guide you through the process, providing expert advice and helping you secure the best possible deal. Contact us today to get started and take control of your financial future.