When to remortgage
A remortgage is when you take out a new mortgage on a property you already own. There are various reasons for remortgaging, but when is the right time to do it?
When can you remortgage?
You can remortgage at any time, but there's no point in doing it unless the figures stack up. You should only remortgage when it makes sense to do so, such as when you’ve come to the end of your fixed-rate mortgage deal, interest rates are much lower than your current one, or you’re looking to borrow more money against your home.
Gone are the days of staying with the same lender for your whole mortgage. Now, it’s common for people to switch mortgage deals and lenders several times during their mortgage term if they’re looking to get the best deal, or release money for home improvements.
Let's look at some of the main reasons people change deals to help you answer that all-important question, "When can I remortgage?".
Remortgaging when there are low interest rates
If you're within the last six months of your current mortgage deal, getting started with switching to a new rate could make sense to avoid being put onto your lender's Standard Variable Rate (SVR). The SVR can be substantially higher than the rate you could get on a new deal. That means you could pay significantly more over the term of your mortgage if you stick on SVR with the same lender rather than switching.
Various remortgage deals are available, including two, three and five-year mortgages, both fixed and variable. If you remortgage to a longer fixed rate deal, you'll be guaranteed the certainty of being protected from any potential increase in rates whilst your deal is fixed. However, opting for a longer fixed-term deal rather than a shorter one may mean that, should mortgage rates fall, you'll be locked into paying a higher rate than you might otherwise have to pay.
It’s also important to look into the cost of switching if you’re currently on a special or introductory deal. If so, you may have to pay an Early Repayment Charge (ERC), which can be significant.
Remortgaging when you’ve built up equity
The remortgage deals that are available to you will depend on how much equity you have in your property, and generally speaking the more equity you have the more choice of deals you’ll have available to you.
So for example, if you put down a 20% deposit when you bought your home, you would have taken out an 80% mortgage. If you’ve now paid off a further 10% of your mortgage, you’ll now have 30% equity, and could take out a 70% mortgage. A new lender will need to value the property to confirm how much they think it’s worth but if you are now in a lower loan to value bracket then you should find that you qualify for a better remortgage deal as a result.
Remortgaging at the end of your fixed rate
Many people, when they initially take out a mortgage, get a fixed rate deal. These offer you a fixed payment on your mortgage for a specific period of time, usually for two, three, five or ten years. When you get to the end of your fixed-rate term, you’ll usually be moved onto your lender’s Standard Variable Rate (SVR). As SVRs are usually higher than the deals available to you if you want to remortgage after a fixed-term then it makes sense to shop around for better rates.
You’re usually under no obligation to stay with the same lender once you move to their SVR, so it’s a good idea to shop around and see whether there are any better deals available on the market. Our expert team can help you to find the right remortgage to suit your circumstances.
Can I remortgage during a fixed term?
If you want to remortgage before the end of a fixed term rate, you'll probably have to pay Early Repayment Charges. We can help you weigh up whether it’s worth paying these or not. If your new mortgage deal has significantly lower rates, then it may make sense to switch, but it often doesn’t make financial sense to do so, as ERCs can be hefty.
Our early repayment charges calculator helps you work out if a remortgage during a fixed term deal is worth it, depending on your circumstances.
Early Repayment Charges aren’t the only costs associated with a remortgage. You may also have to pay arrangement fees, valuation fees, legal fees and exit fees.
When you want to overpay, but your current lender won’t let you
Lenders and mortgage products vary with how much extra you're allowed to pay back every month, with some applying Early Repayment Charges for overpayments over a certain amount. That causes a problem if you want to pay a lump sum off or increase your monthly repayments to pay your mortgage back sooner. So if you wish to overpay, but your current mortgage terms don't allow it, you might want to consider remortgaging to a more flexible deal instead.
If you find yourself in this situation, you can remortgage at any time - but you may be subject to Early Repayment Charges if you’re currently in a deal. It's important, therefore, to make sure you have the full details and compare the benefits of switching to a more flexible deal versus how much you'll need to pay in fees.
When you want to borrow more
Remortgaging isn't always about getting a better deal. Sometimes, homeowners remortgage because they want to borrow more money, for example, to fund home improvements or to pay off other debts.
This is a common reason for remortgaging, but your existing lender may not allow you to do so - or they might have agreed to it but offered poor rates for the extra borrowing. In that case, you might look to remortgage with another lender, allowing you to borrow money at a better rate.
Remortgaging isn't always the best way to borrow more money. For smaller amounts it might be better to take out a personal loan or borrow on a credit card instead. It's essential to weigh all the options and consider any extra fees you might have to pay before deciding to borrow more against your home.
When not to remortgage
As well as knowing when to remortgage, it's essential to know when it's not a good idea to switch lenders or deals.
When your Early Repayment Charge is high
If you try to remortgage before the end of a fixed-term deal and many discount or tracker deals, you may face high ERCs - and in some cases, they may be so high that it negates any potential benefit of switching deals. That's why it's always important to consider all possible charges and work out the total cost of remortgaging before signing on the dotted line.
If your ERCs are too high to make it worth switching lenders now you might find they reduce over time, so it may be worth reviewing again when they are about to reduce next.
When your financial position has changed
If you've been made redundant, taken on a new job with a lower salary, or have recently become self-employed, it may be more difficult for you to move to a new lender. If your circumstances have changed so much that you no longer fit a lender's criteria, you won't be able to get a mortgage with them.
In this case, again, it may be an option for you to switch products with the same lender rather than switching to a new lender.
When you don’t have much equity
If you don't have a lot of equity in your property and need to borrow 90% of it’s value or more, you may find getting a good remortgage rate challenging. However, 90% and 95% mortgages have become more competitive recently, so it's always worth checking to see if there are any options to suit your circumstances. Get in touch if you want to find out more, and our advisers can help you to find the right deal for you.
When your mortgage debt is small
Similarly, if you own a large percentage of your home and only have a small amount (typically less than £25,000) left to pay on your mortgage, you may find it challenging to get a better deal. Quite often you’ll find that the costs involved in moving to a new lender will outwight any saving you might make on your monthly payments. In fact, many lenders won't take on mortgages of less than £25,000, so you're often better sticking with your current lender.
Again, it's worth having a look to see if there are any options out there for you, but bear in mind that if you current deal still has any Early Repayment Charges it may mean that switching isn't worth your while.
