One term you may hear frequently when talking about mortgages is ‘remortgaging’. In this article we’ll discuss what it means to remortgage your property. We’ll also discuss when it may be beneficial to remortgage, and when it may not be the best option for you. We’ll also look at other factors to consider when deciding whether to remortgage.
What does the term ‘remortgage’ mean?
In the UK, the term ‘remortgage’ is used to mean moving your mortgage to a new lender. The new lender pays off your mortgage with your previous lender. You then begin a new mortgage term with the new lender.
Many think beginning a new mortgage deal with your existing lender is remortgaging. However, this is known as a product transfer.
Why might you choose to remortgage?
There are a number of reasons why you may choose to remortgage.
Your current deal is coming to an end
At the end of your current deal, you will look for a new deal for your mortgage. If you do not, your mortgage deal will end and you will revert to your lender’s standard variable rate. This will likely be at a significantly higher rate than you were previously paying. You may choose a new deal from your existing lender, or to remortgage with a new lender. This will depend on your circumstances, and the mortgage deals available to you. Bell Mortgage Solutions can help you find the best mortgage deal for your requirements. Contact us now to start the conversation.
You want a better rate
Even if you are not coming to the end of your existing deal, you may choose to remortgage for a better deal. This could be because your property has significantly increased in value. A higher value property will give you a better loan-to-value ratio, prompting better rates from lenders. The financial savings you make from the more favourable rates should be offset against potential early repayment fees you would incur by changing lenders mid-deal. It may be more financially advisable to wait until your current deal ends before taking advantage of a better loan-to-value ratio.
You want to change the terms of your mortgage
If you want to borrow more against the value of your property, and increase your mortgage, you may remortgage. This would effectively pay off your existing mortgage and begin again with a higher value with a new lender. Alternatively you may be looking to change from an interest-only mortgage, for example, to a repayment mortgage. This would mean you start to bring down the amount owed on the mortgage, rather than only paying the interest accrued. Bringing down the “loan” amount in relation to the “value” of the property will improve your loan-to-value ratio. The benefit of this is more favourable rates available for your mortgage deals.
As previously mentioned, you should consider the potential financial implications of leaving a mortgage early if you are mid-deal. You are able to borrow more against your property or change mortgage type at the end of your mortgage deal too. Whether to wait until then is a decision that should be taken on an individual basis. The team at Bell Mortgage Solutions are on-hand to talk you through the options available.
You want greater flexibility
Some mortgage deals offer greater flexibility than others. This flexibility may allow you to make overpayments on your mortgage. Our earlier blog post detailed why you may look to make overpayments on your mortgage. In many cases you may overpay a certain amount per year, e.g. 10% of the mortgage value. However, there are often charges incurred once this threshold is passed. If you are in a position to make overpayments, it may be suitable to remortgage to a lender offering the most flexible overpayment terms.
Why may remortgaging not be right for you?
Remortgaging may not be a suitable option for you. You may already be on a good deal with your existing lender. At the end of your current deal, a product transfer to a new deal with the same provider may be better for you. As previously mentioned, your existing lender may impose expensive charges for early repayment. This charge should be balanced against potential savings from remortgaging. If the numbers are not favourable, remortgaging may not be advisable.
If your circumstances have changed
Your financial circumstances may change for a variety of reasons. Your income may have lowered since your mortgage deal was originally agreed. This may mean less favourable mortgage deals are available to you. It may therefore be more financially advantageous to remain on your existing deal for its full duration.
The same is true if you currently have a lower credit score than when your mortgage deal was agreed. This may be due to a series of missed payments on credit cards, for example. Again, this may result in less favourable deals being available to you. Waiting until the end of your current deal to remortgage gives you time to improve your credit score.
Your property value has decreased
If the property market has suffered a downturn, you may find the value of your property has decreased. This will mean your loan-to-value rate becomes less favourable, resulting in fewer good rates being available for you. If this is the situation you find yourself in, it would be better for you financially, not to remortgage mid-deal.
Other factors to consider regarding remortgaging
As well as the financial implications of early repayment fees if you remortgage before the end of your mortgage deal, there are considerations. Even if you choose to remortgage at the end of your existing term, there may be additional fees. These may include arrangement fees, booking fees and broker fees. Any applicable fees should be included in calculations before determining whether to remortgage or not.
If you’re unsure whether to remortgage or not, contact the team at Bell Mortgage Solutions. We’ll take a look at your financial circumstances and the mortgage deals available for you. By exploring the different options as well as any applicable fees, we’ll find the best deal for your needs.
Please note: Your home may be repossessed if you do not keep up repayments on your mortgage.
The information contained within was correct at the time of publication but is subject to change.
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