Remortgaging your home: Should you do it in 2019?
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Why should I and shouldn’t I remortgage?
Remortgaging is the process of switching your current mortgage to a new deal. You can choose to stay with your current mortgage lender, or you may want to move to a different provider.
The idea is to ‘shop around’ for the best deal you can get on your mortgage so that you have an opportunity to save money. If you find a better deal and you move your mortgage, you will have remortgaged.
When should I consider remortgaging?
Not many people take out a mortgage and stay with the exact same loan for the full term of 25 or more years until it is fully paid off. Usually, people move up the property ladder and start a new mortgage then, or pay the mortgage off if they downsize.
Those that stay in the same property for a while tend to fairly regularly look to remortgage in order to take advantage of the best deal they can receive as their circumstances change.
Here are some of the reasons why you may find it a good idea and should remortgage:
- You want to get a better interest rate to save money
You simply want to secure the best deal you can get on your mortgage, just as you would with anything you pay for. After all, with a mortgage, getting a better rate could equate to saving a lot of money each month. That could be worth a significant amount of money to you depending on how long you stay with the remortgage.
However, note that if you decide to move your mortgage to a new one with a better rate, your current lender may demand an early repayment charge (exit fee) that may be so large that it no longer makes financial sense to make the change. A mortgage broker like Loan.co.uk will be able to help you to decide whether or not this will be the case for you.
- Your existing mortgage fixed rate deal is ending
If you signed-up for a fixed rate mortgage where you pay the exact same amount each month for a pre-agreed period (usually for between 2 and five years) but are then due to move to a variable rate, the chances are that you will be have to start paying a higher interest rate than you have been.
Now could well be the time to see if you can move to a better rate, either with your existing lender or a different one.
- You now have more disposable income and want to make overpayments
It may be that you have had a promotion and/or pay rises since you took out your original mortgage, and you would like to pay down your mortgage quicker by making overpayments. However, if your current lender does not allow this with your mortgage product, it may be worth looking to remortgage. You may even be able to get a better rate at the same time.
- You are currently on an interest-only mortgage but want to change to a repayment mortgage
With an interest-only mortgage you are only paying the interest on your mortgage and you are not chipping away at the capital that you have borrowed. This is fine if you have a separate payment vehicle (stand alone investment specifically designed to pay off the mortgage), but these do not always perform well enough to achieve this. Alternatively, perhaps you took out an interest only mortgage because it fitted your budget when you took out the mortgage.
In either case, it will probably make sense for most homeowners to switch to a repayment mortgage as soon as they can afford to do so. The main exception would be landlords, who may have decided to sell the property to pay off the mortgage at a later date.
- You want to borrow more money to make home improvements
If you generally like your home and neighbourhood you might not want to move, but you may wish to make expensive home improvements such as an extension, loft conversion or new kitchen. If so, remortgaging may enable you to borrow a larger amount so that there is money to fund both the enhancements to your home that you are considering as well as the amount that you still owe on your property.
Note that if you will have to pay an early repayment charge (ERC) to your existing mortgage lender if you felt you should remortgage, it may work out better to take out a secured loan, often known as a homeowner loan or second charge mortgage.
- Your home’s value has risen dramatically since you took out your mortgage
If this is the case, it may be that your loan to value ratio has improved dramatically, meaning there is less risk to the lender. In turn, you may be eligible for a more competitive interest rate.
When is remortgaging not a good idea?
Remortgaging is not suitable for every situation and it would probably best to stay with your existing mortgage if:
- Your outstanding mortgage balance is small
- You already have a competitive mortgage rate
- There is a large early repayment charge
- The value of your home has dropped
- If you have very little equity (the amount of value in your home that is free and clear of a mortgage or secured loans) in your property
- You have had problems with credit since you took the mortgage out
How does remortgaging work?
- Review the mortgage market
Sites such as Loan.co.uk are a good place to look as an expert broker will be able to quickly guide you to the best deals for you and your circumstances.
- See if you can receive an Agreement in Principle (AiP)
This will enable you to see if a specific lender is able to lend you the amount you require. Often, an AiP can be issued without a full credit check being made, so at this stage there is no impact on your credit history.
- Weigh-up the costs
The main reason many people remortgage is to save money, so check that by moving your mortgage will leave you better off once all the fees/charges are taken into account, such as any application fees (also known as arrangement or booking fees), valuation fees, legal fees and, if applicable, an Early Repayment Fee.
- Apply for your remortgage
If you are happy with your Agreement in Principal, apply for your remortgage. If you use the services of Loan.co.uk we can take care of most of the paperwork for you so that you can get on with your life with minimal disruption. Although your broker will carry out all the ‘heavy lifting’ for you, you will need to produce details of your outgoings, details of your current mortgage and other credit commitments and proof of income, such as payslips and bank statements.
- Complete your remortgage
The new (potential) lender will carry out a credit check and your home will be valued. If all goes well, a solicitor will then arrange the transfer of your mortgage.
How much can I remortgage my home for?
This varies from person to person as everyone’s circumstances are different. For example, it will depend on whether you have any other loans secured on your home, how much your property is now worth, your credit score and your current income and outgoings.
Can I remortgage with bad credit?
If you have had financial issues since you took out your current mortgage, your existing lender may not feel that they can offer you a remortgage. If they are prepared to offer you one, it may not be on better terms than your current loan, so it might not really be worth signing up to it.
You will probably have a poor credit history and credit score if you have:
- Missed or made late payments
- Are in a debt management plan
- Become bankrupt or are in an Individual Voluntary Arrangement (IVA)
- Defaults on your credit file
- County Court Judgements (CCJs) against you
Lenders look on a poor credit history as sign that you probably have poor money management skills and that means that you could be a financial risk to them.
However, although suffering from bad credit is not a pleasant situation to be in, even if your current lender is not interested in offering you a viable remortgage deal, a good loan broker such as Loan.co.uk may still be able to deliver a great deal for you.
What are the costs involved with remortgaging?
Usually, the main cost consideration with remortgaging will be around whether or not your existing mortgage (ERC) comes with an early repayment charge that is payable before you are allowed to exit and start another mortgage.
If there is an ERC on your existing mortgage, often the charge reduces depending on how long you have had the loan, but this will depend on the lender and the particular mortgage you signed-up for.
Even if there is an ERC, if the remortgage you are moving to offers a significantly lower interest rate you may still be better off shifting to the new mortgage. An expert mortgage broker such as Loan.co.uk can help you to see if remortgaging will make financial sense in your particular case.
There may be other fees involved including booking fees, valuation fees and legal fees.
Thinking you should remortgage? Why not see how much remortgaging could save you each month.