Remortgaging Explained And How To Go About It

Finance

To remortgage or not to remortgage: working out if it’s worth it.

The sheer number of mortgages available in the market can be quite bewildering.

Perhaps that’s why many people chose to stick with their existing mortgage for the full term of their loan.

However, there can often be advantages to switching. Here’s a quick guide to help you to decide if you could benefit.

What is remortgaging?

Simply put, it’s the process of switching from one mortgage to another, either with the same or a different lender. Usually, it’s done to take advantage of a better deal found elsewhere.

Why do people decide to remortgage?

  • The special introductory rate of their current mortgage has come to an end and they don’t want to pay the lender’s standard variable rate (SVR) rate.
  • They’re on the lender’s SVR but want to switch to a different type of mortgage which offers a better rate
  • They want to switch to a more flexible mortgage that suits a change in their circumstances
  • They want to release equity from their property if the value has increased.

Usually, the main motivation people have for remortgaging their homes is to save money. If your mortgage repayments are at the lender’s SVR and you find a capped mortgage that sits below this rate, then it could be beneficial to switch to the capped rate because your repayments will be lower.

Is there a catch?

Lower monthly repayments are not the whole story: you also need to take into account all the costs involved with switching. These might include early repayment charges and exit fees to your current lender and arrangement or legal fees to your new lender. Sometimes these can wipe out any benefit gained from switching, so make sure you‘re fully aware of the costs before making a new mortgage application.

How do I work out if it’s worth it?

First, make an honest assessment of your current financial situation, as it may have changed since you took out your last mortgage. Bear in mind that lenders will normally refuse to lend more than 90% of your property’s value and more than 4 times your income.

Second, remember the reasons you wanted to switch in the first place.  If there are factors other than the cost involved, i.e. you want more flexibility or more security, then take this into account when looking for mortgage deals.

Third, do your research and shop around.  Compare quotes from a range of different providers so you are in the best possible position to make a decision.  If you’re using a mortgage broker to help you find the best rate, bear in mind that some lenders, don’t sell their mortgages through brokers.  So don’t forget to compare what the broker offers you with what you can get from a lender directly.

Finally, once you find a suitable mortgage, remember to compare the total cost of the remortgage (i.e. all the associated fees) against the savings you’ll make before you actually take the plunge and remortgage. To work this out, you need to factor in the size of the savings over the number of years left to repay.  As a general rule of thumb, if you’ve less than five years left on your mortgage, the savings on your repayments probably won’t outweigh the cost of switching.