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When should I remortgage?
Remortgaging is taking out a new mortgage on a property you already own. This is usually done to reduce your monthly payments by switching to a cheaper interest rate or to free up some extra cash using the equity in your home. Whatever your reason for wanting to remortgage, however, timing is everything. We’ll look at when remortgaging is most beneficial, and when it may be best to avoid remortgaging for the time being.
Compare remortgages
Whether you're looking to save money with a remortgage or borrow more, comparing deals with the help of an expert broker can help you get the best deal for your circumstances.
Why should I remortgage?
Remortgaging gives you the opportunity to switch mortgage deals to one that is more suited to your needs, whether it has lower interest rates, more flexible terms, or both. You can also remortgage to increase your borrowing, either when moving to a more expensive property, or simply to make use of the equity built up in your home.
To make the best of your remortgage options, timing is absolutely essential, so it’s important to understand when is a good time to remortgage, based on your current circumstances.
Should I remortgage now?
If you're coming to the end of a fixed-term deal or a variable rate introductory period, then it's probably a good time to remortgage, even though both deal types are much more expensive than they've been in recent years.
According to the latest UK remortgage statistics, almost 885,000 UK mortgages will be up for renewal this year as their existing deal comes to an end.
If you don't remortgage before your deal ends, you'll automatically be switched onto your lender's SVR (standard variable rate) which is generally higher than the other deals that they have available. At the time of writing the average SVR is more than 1.5%* higher than the average fixed-rate and almost 3%* more than the average variable rate (at 75% LTV) so choosing to stay put could mean paying much more than you need to in interest.
*This could change at any time and markets are more volatile than usual at the current time
When is the best time to remortgage?
If any of the following scenarios apply to you, then you could benefit from remortgaging:
Your current fixed-rate mortgage deal or introductory rate is about to end - If you don’t remortgage and your current deal expires, you will end up on the lender’s standard variable rate (SVR) which is likely to be higher
You’ve seen a better interest rate available elsewhere - If your current deal has not yet ended you’ll need to weigh up whether the early repayment charges (ERCs) to leave the deal and fees involved with remortgaging will outweigh the benefits of the lower rate
You’re on a variable rate deal and are concerned about interest rate rises - this can be a difficult judgement call, especially in a turbulent market, like we're currently seeing. If you’re concerned, you may be best switching to a fixed-rate deal, however, do bear in mind ERCs and remortgage fees
You want to borrow more money - sometimes remortgaging can be a good way to borrow additional funds for things like home improvements, a large purchase, such as a car, or to consolidate other debts. You use the equity (amount you already own) in your home to secure the borrowing, and this often allows you to access a larger amount than you could get with a credit card or loan. Bear in mind that this is not always the cheapest form of borrowing, however
Your equity has grown significantly - If the price of your property has risen considerably since you bought your home, your equity will have increased. This means that the loan to value (LTV) of your borrowing will have decreased. A lower LTV can give you access to much better interest rates - even if they're not better than your previous rate, you'll get access to the best rates currently available, the higher your equity is
You want more flexible features - If your existing mortgage deal has strict terms regarding overpayment, but you’d like to try to repay more quickly, you might want to switch to a deal that allows you to overpay without incurring fees. There are also other flexible mortgage features that may be attractive to you if you don’t already have them, such as the ability to take a payment holiday or offset your savings against the interest
Should I remortgage to change from an interest-only to a repayment mortgage?
Most lenders will allow you to change from an interest-only to a repayment mortgage without the need to remortgage, as the vast majority of deals will accommodate both repayment methods.
Some lenders may even be able to change your payments to part and part, which is where you repay some of your mortgage as interest-only and some as capital repayment.
Usually, if you wanted to switch in the opposite direction from repayment to interest-only, most lenders would be less comfortable with this unless you're able to provide a robust repayment plan for the remaining capital (money you borrowed) repayment at the end of the term.
However, at the current time, there is an agreement among most major UK lenders that those struggling with their mortgage repayments can temporarily switch to an interest-only mortgage for up to six months. You can read more about this and how else to cope if you can't afford to pay your mortgage in our helpful guide.
When should I avoid remortgaging?
There are also times where remortgaging are unlikely to provide you with the benefits you’re looking for, or may not even be possible. If any of the following apply to you, then remortgaging may not be the best immediate option:
Your mortgage debt is small - typically if you have less than £50,000 remaining to repay on your mortgage, the remortgage fees would outweigh any potential savings you could make with a lower interest rate. It’s worth checking with a broker though, before you rule it out completely.
There are large ERCs on your deal - if you’re not near the end of your existing deal and the early repayment charges to leave are high, then it’s probably not going to be worth your while remortgaging until the deal has ended. When you add up the total cost of repaying ERCs (which can be as much as 5% of your outstanding loan balance) and the remortgage fees, it’s unlikely any deals will have low enough interest rates that you would still make any savings by switching
Your finances and/credit score have taken a hit - if you have less income, or have got into financial difficulties since you first took out your mortgage, it’s unlikely that you will be able to remortgage onto a better rate, in fact, in some cases you may not be able to remortgage at all, especially if your credit rating has been affected by your financial issues
Your home has fallen in value - if the value of your property has fallen since you took out the mortgage then your LTV may have increased, or worse, you could have fallen into negative equity - this is where you owe more than the current value of your home. A higher LTV means that the remortgage rates available to you will almost certainly be higher than what you’re already paying. There are not likely to be any lenders able to offer a remortgage to someone in negative equity
“Some borrowers are willing to pay early repayment charges to break out of their existing deal, in order to secure a long-term fixed-rate now with a competitive rate. However, it’s important to be aware of how much these charges will cost you, as they could amount to thousands of pounds”
Aidan Darrall, Mortgage Expert at Mojo Mortgages
How long does it take to remortgage?
It's usually quicker than taking out a purchase mortgage, especially if you're remortgaging just to lock in a new rate. The typical length of time for a remortgage to complete is around four to eight weeks, but this could be longer if you're extending your borrowing.
Can you remortgage early?
You can secure a remortgage up to six months before your current deal ends. You're not bound to the new deal until your current deal term ends, so you can always switch to a better deal, should one come up before the new one starts.
How soon can I remortgage after taking one out?
Theoretically you can remortgage whenever you want to, however, most lenders won’t let you if you’re still within the first six months of buying your property. Most people don't remortgage this early as it's unlikely you'll save money due to early repayment charges (ERCs).
If you’re locked into a fixed-rate period or an introductory rate of any kind, however, the ERCs involved with remortgaging so early on, not to mention the standard fees involved in remortgaging, will likely cancel out the savings you would make.
What are the benefits of remortgaging early?
Mortgage offers are typically valid for six months, so you could lock a deal in place months before your existing one ends, which may not be available when your deal has ended. You'll then transfer onto the locked in deal when your current deal does end.
The best thing is, you’re not locked into that deal until your existing deal ends. This is really useful in a turbulent market where it's not clear where rates are likely to sit in six months time, as if you see a better deal within that six-month window, you can still take it.
What are the fees associated with remortgaging early?
Early repayment chargec (ERCs) are charged if you remortgage before your existing deal ends. These should be outlined in your mortgage terms and conditions, but can be very costly and are usually charged at a percentage of your outstanding balance.
The percentage of ERCs you pay tends to reduce the closer you are to the end of the term.
For example: If you have a 10 year fixed-rate deal and leave with nine years remaining, the ERCs are going to be very high. If you're on a two year fixed-rate deal and are 12 months in, the ERCs might not be too high, depending on the individual deal.
How often can you remortgage?
You can remortgage as many times as you want to, so long as you're in a position to meet the remortgage criteria.
However, keep in mind that there are costs involved each time you do. Even if you don't have ERCs, there will be arrangement fees, valuation fees and legal costs to pay each time. Whilst some deals offer certain incentives such as free valuations on a remortgage, it’s unusual to remortgage without paying any fees at all.
Some lenders also change an exit fee, which typically applies whether or not you leave the deal early. If you do leave early, you could, therefore, end up paying both.
Should you remortgage with your existing bank or switch to a new lender?
It depends which one is offering the best deal for your circumstances. It can certainly be quicker and easier to remortgage with your existing lenders - known as a product transfer. However, if another lender is offering lower interest rates or better flexible features, then it may be worth moving to them.
This can be a tough decision, as it will depend on your circumstances and the deals that are available at the time, but a mortgage broker will be able to help you make an informed decision.
Advantages and Disadvantages of remortgaging
The pros and cons of remortgaging will apply to you differently depending on your circumstances, but generally they include:
You can potentially save money by reducing your interest rate
The rates available on a new deal are still likely to beat the SVR you'd fall onto at the end of your deal if you don't remortgage
You can switch to a deal that gives you greater peace of mind, perhaps a fixed-rate, for example if you want more certainty
You could borrow more money
You may have the option to extend or reduce you existing mortgage term to suit your needs
The cost of remortgaging sometimes outweighs the benefits
Not everyone will be eligible for a better rate of interest, or to remortgage at all - it’s treated as a new application, so can be difficult if your circumstances have declined
If you're remortgaging to release equity it can be cheaper to borrow money with a traditional loan - even though the interest rate may be higher on a loan, the repayment period is typically shorter than a mortgage term, meaning you could still pay more interest overall by borrowing more on your mortgage
Timing is crucial to remortgaging, as the benefits you'll get vary depending on your circumstances. Locking in a deal before your current deal ends can save you from paying your lender's SVR, however, so speak to a broker at least six months ahead of that date to see what's the best path for you. ”Kellie Steed, Mortgage Content Writer
When to remortgage FAQs
Can I reduce my loan-to-value to get a better rate?
Yes, having a lower LTV (loan to value) ratio on your borrowing can give you access to better interest rates. You typically achieve a lower LTV by gaining equity, which occurs gradually as you repay your mortgage, and if your home gains value.
You could opt to overpay your mortgage in order to gain equity more quickly, if your mortgage allows you to do so. Bear in mind that most lenders will charge fees if you repay more than 10% of your outstanding balance in any 12 month period.
How do I find the best remortgage deal for me?
There are a huge number of remortgage deals available across the market, so it’s important to look at everything that’s available to you and compare the true cost of each one before you make a decision.You can use the Annual Percentage Rate of Charge (APRC) to help you compare deals. A mortgage broker will be able to help you with this.
Can I remortgage early on a fixed-rate mortgage?
There is no legal reason why you can’t do this, however, although most lenders won't allow you to within the first six months of the deal. However, you'll most likely have early repayment charges (ERCs) to pay if you do choose to come out of a fixed-rate deal early.
If these charges are relatively low, it may be worth comparing them with the savings you'd make by remortgaging straight away. In many cases, however, it will be better to wait until there are no ERCs to pay.
Can I remortgage?
It depends on your circumstances. You can generally remortgage so long as you are financially able, which means you can afford to repay the new mortgage and you have enough equity in your home for the lender to approve the deal.
However, there are certainly times when it will be make more sense to remortgage than others. Read this article in full for some suggestions on when might be a good or bad time to remortgage.
