There are lots of reasons why you might choose to remortgage your home or investment property. While there might be a little bit of “hassle” and administration involved, as discussed below, providing you do your homework on the costs and benefits, the financial savings can be considerable.
When you remortgage, you are essentially switching your existing mortgage to another deal, and frequently (but not always), another lender. Remortgaging can be used to help you lower your monthly repayments, pay off your loan sooner or borrow more money.
The main reasons why people choose to remortgage are:
- A better deal is now on offer! - In an environment where interest rates are falling, you might be able to find a mortgage that offers a lower rate. You will need to 'go through the maths' to ensure that switching makes sense, as it is likely that there will be a cost of exiting your current mortgage earlier than contracted. This is where talking to a mortgage broker can help as they will have considerable experience and will be able to explain the full costs and benefits of switching.
- Your current mortgage is due to expire! - Most mortgages have a minimum contractual period of between 2 and 10 years where a fixed or discounted interest interest rate is offered. If your current deal and contractual commitment is about to expire, you will probably revert to a standard variable rate offered by your lender. This is a good time to shop around and see what’s available. When your existing deal expires, the cost of switching is likely to be substantially reduced.
- You want to consolidate your debts! - If you’re a homeowner and have multiple debts that you’re struggling to manage, one option is to consolidate the debt by taking out a higher mortgage loan. You should think carefully before securing other debts against hour property as your home might be repossessed if you do not keep up payments on a mortgage or any other debt secured against it.
- Your circumstances change! - A change in personal circumstances can often be the catalyst to manage your finances and expenses differently. For instance, having children might cause you to want to plan your expenditure for the next 3-5 years and lock in mortgage payments for that period. Similarly, you might have come into a windfall or increased your salary and decided that you want to pay more back on your mortgage or reduce the number of years remaining. A remortgage will allow you to change the loan size or the repayment period to match your current circumstances.
- The value of your home goes up! - If your home has gone up in value and the mortgage is now a smaller percentage of the property value (LTV), you might choose to refinance to release some of the positive equity. Alternatively, where your home has increased in value, you might find that lenders are willing to offer you better terms and lower interest rates on a remortgage because you now have a lower LTV ratio.
The most important thing is that the numbers and terms and conditions have to add up and make it worth your time and effort. People can be unpleasantly surprised at the cost of switching out of a mortgage early. Keeping this in mind, remember that you may be able to switch your mortgage deal with your current lender, avoiding any unnecessary costs. Many lenders will allow you to switch your mortgage deal reasonably frequently.
If you are thinking of moving ahead with a remortgage then:
- Understand what it is you want to achieve – reduce payments, shorten the mortgage period, borrow more, consolidate your debts etc.
- Get a current valuation on your home.
- Look at what deals are currently available in the market or better still, talk to a mortgage broker.
- Do all of the maths to fully understand the costs of exiting your existing mortgage, the benefits to be gained from the new deal and the costs of taking out the new mortgage.
- Ensure that your credit score is still in good shape.
- Start the application process.
Want to know more?