Remortgaging can seem daunting, but it's a vital financial step for homeowners as their mortgage deals come to an end. Whether you're aiming to secure a better rate, release equity, or even move home, understanding your options is crucial.
Let's break down the remortgaging process and key considerations to help you make informed decisions.
What Is Remortgaging?
In simple terms, remortgaging involves switching your existing mortgage deal to a new one. This can be done in two ways:
1. Product Switch: Staying with your current lender and choosing a new rate.
2. Full Remortgage: Switching to a new lender entirely, requiring a fresh application, including solicitor involvement to update legal titles and ensure everything is in order.
Both routes offer opportunities but come with distinct processes and considerations.
Why Consider Remortgaging?
When your fixed-rate mortgage ends, you’ll typically revert to your lender's Standard Variable Rate (SVR). Every lender has one and it is essentially the most expensive and the most volatile rate that they offer. It can change at a moment's notice depending on risks that lenders perceive in the market. Typically it's a good few percent higher than their most competitive rates and certainly slightly higher than the base rate as well, which can dramatically increase your monthly repayments if you do nothing when your fixed rate ends.
For example, we recently encountered a homeowner whose monthly payment jumped from £850 to £1,380 because they failed to remortgage on time.
Benefits of Remortgaging:
Avoid The SVR: Give yourself certainty over the monthly amount you will pay
Unlock Equity: Borrow more against your home for renovations, debt consolidation, or other large expenses.
Reduce Your Borrowing: Pay off some of your mortgage in one lump sum if there is enough equity in your house
Adjust Terms: Shorten your mortgage term to pay off your loan faster or extend it for lower monthly payments.
Timing Is Everything
Starting early is key. Most lenders notify you 3-6 months before your deal ends, giving you ample time to explore your options. Your mortgage broker will most likely remind you too. Beginning the process six months in advance allows you to:
- Address any financial blemishes, such as arrears or overdrafts.
- Check your credit file for unexpected issues.
- Ensure all accounts, including mobile phone bills, are in good standing.
Anecdotally, one of our clients avoided a potential snag when they spotted an old unpaid mobile bill on their credit report. Simple oversights like this can derail your remortgage application, so vigilance is essential.
Avoid Overextending
Many homeowners fall into the trap of financing furniture, cars, or renovations after purchasing their homes. While tempting, excessive credit can impact your ability to remortgage, leaving you stuck with the standard variable rate.
We’ve seen clients putting a couch, kitchen, and car on credit soon after moving in, only to struggle when the time came to remortgage. Avoid these pitfalls by managing credit responsibly and thinking ahead before committing to large purchases on credit. Do you really need them right away? Are they worth the financial stress if debt becomes unmanageable? In many cases, delaying big purchases until you’ve saved for them can be a far wiser and less stressful choice.
Using Remortgaging to Fund Renovations
If you're planning major renovations like a loft conversion, conservatory or extension, remortgaging can help fund these projects. Here's how:
You borrow additional funds by increasing your mortgage balance.
For instance, you originally borrowed £100,000 and, five years down the line, your remaining mortgage is £95,000 while your property value has increased. In this situation you are likely to be able to borrow a little more. So you might remortgage to borrow £120,000, using the £25,000 difference for your project.
While this can be a convenient option, remember that this debt is secured against your home. If repayments become unaffordable, your property could be at risk. As always, lenders will check your finances first before freeing up that extra money.
Making Changes To Your Mortgage
The point at which your fixed rate comes to an end is also a good time to re-evaluate your previous choices.
Perhaps you have come into some money - an inheritance or a big bonus for instance - and you can pay part of the loan off without penalty or change the term so that it is completely paid off earlier than originally planned.
On the other hand, if the interest rate has gone up and you are feeling squeezed, you might want to extend the term of your mortgage, giving yourself a little breathing space by paying slightly less each month over a longer time period.
Moving Home
If you are thinking of moving house, the end of your fixed rate is a good time to do it as you won’t have any penalties or additional charges on your mortgage.
If the timings don’t work, however, you can consider "porting" your mortgage. Porting allows you to transfer your existing mortgage rate and balance to a new property. However, any additional borrowing will be at the lender's current rates.
Bear in mind that porting isn’t guaranteed. You’ll need to meet affordability criteria again, and some lenders don’t offer this option. You’ll still have to go through an application process and if you have missed payments or if your circumstances have changed, you may not qualify for the same offer.
For example, if you have children, your monthly expenses will almost certainly increase and so it is important to look at what you can afford rather than taking on a mortgage that you potentially won’t be able to pay in a few years.
Also, be aware of early repayment charges (ERCs) if you move before your fixed term ends.
What Are ERCs?
ERCs are fees lenders charge to recoup losses if you exit your mortgage deal early. These charges typically decrease over time, e.g., 5% in year one, reducing annually. In some cases, paying an ERC can still save money if you secure a significantly better rate.
Final Takeaways
- Start Early: Begin exploring options six months before your deal ends.
- Check Your Credit: Ensure your financial history is spotless.
- Speak to a Broker: A good broker can assess your needs and guide you through the process.
- Consider Life Changes: Think about upcoming events like expanding your family, which may affect affordability.
- Avoid the Standard Variable Rate: It's expensive and offers no financial benefits.
Remortgaging is a powerful financial tool, but it requires careful planning. Whether you're staying put, upgrading your home, or moving, the right strategy can save you money and provide peace of mind.
Do you have questions about remortgaging? Contact us today to discuss your options and secure the best deal for your needs.
