Remortgaging

What is remortgaging and how does it all work?

Typically, the term remortgaging means selecting a new mortgage product. If it’s with your current lender that would be classed as a product transfer or a product switch. 

Let’s say your fixed rate deal is coming to an end and you want to select a new product – a new fixed rate for example – for a new period of time. You could stay with your own lender as a product transfer. That’s become quite popular in recent years, especially with lenders wanting to retain good payers. 

But the most typical use of the word remortgaging is where you move from lender A to lender B, taking a new product. That market’s very competitive. Lenders are looking to attract good business, so very often they are pricing very keenly to get your business..

When is it a good time to remortgage?

That will depend on your own individual circumstances, but a common time to take a look at remortgaging is when your current deal is coming to an end. We like to speak to people around seven months before the end of their fixed rate or their initial benefit period. 

That gives us time to assess what’s happening, look at the marketplace and get that deal offered and legals through. Then, when your deal ends at, say, the end of September, on the first of October your new mortgage pays your old mortgage off and you go onto the new deal. 

Sometimes people look to remortgage within their benefit period and there are various reasons to consider this. For example, if you’re half way through a five year fixed deal and find that the value of your home has gone up quite significantly, you may be able to secure a lower Loan to Value mortgage. That potentially means you can get a lower interest rate and save money, even if it means paying your early repayment charge.

A good broker would be actively monitoring this for their clients to make sure they’re always paying as little as possible.

Something that’s very relevant now (autumn 2022) is that people are worried about interest rates going up. They might still be in a fixed rate deal, but interest rate rises are escalating – they’re worried where those rates will be at the end of their current fixed deal. It might be beneficial to pay the early repayment charge and secure a new interest rate early. 

Some quite significant maths are involved in that, along with attitudes to risk. It won’t suit everyone, so it’s something you need to take really good advice on. You could do yourself more financial harm than good. 

Another reason why people might remortgage or potentially take a ‘further advance’ with their own lender is to raise money for home improvements. They might wish to add a conservatory, an extension or do some renovations in or outside the home. That’s possible, but it’s usually best to tie it in with the renegotiation of your fixed rate, unless it’s really urgent.

Generally we advise against paying your early repayment charge. It’s best to look at borrowing an additional amount with your existing lender, or potentially review the second charge market. 

A final thing that people look at is rolling unsecured debts into a mortgage. This requires significant advice and assessment on whether it’s the right thing. It might seem an easy option, but do consider that if you’ve got a loan with three years to run, you can make that monthly payment cheaper but you will be extending the repayment time to maybe 20 or 25 years. Advice is very important for a debt consolidation remortgage. Sit down with a broker and run through all the details.

When is remortgaging not a good idea?

If you’re on a very good interest rate already, then you need to assess whether you want to let that interest rate go. That’s becoming more and more relevant with rates rising. 

You will also need to consider whether you’ve had affordability changes. Most people when they buy a home, especially if they’re First Time Buyers, will potentially need to buy things for the home, or a car, causing unsecured borrowing to go up. They might start a family, which increases their costs too, in which case potentially one parent will work less, meaning that income goes down. 

When expenditure goes up and income comes down, a mortgage is less affordable. Therefore remortgaging sometimes isn’t even possible, in which case you’re driven down a product transfer route. If you’re looking to borrow more, that can be difficult as well. 

Another thing that makes it difficult to remortgage is if your property value has dropped. The worst case scenario is that you end up in negative equity, making it very difficult to move lenders. 

I suspect product switches would be available for you if we enter that kind of Market, or if your equity is reduced. For example, you may have secured your deal on a 75% Loan to Value and now you’re up at 90%. In that case, it wouldn’t make sense to walk away from the rate that you’ve got. 

The key overriding things to look at are:

Mortgage size: if it’s a very small mortgage, the gains made by remortgaging are smaller and you should look at the overall cost involved. 

Early repayment charge: if that’s quite large, you’re just not going to save money by exiting your deal early. 

Your goals: whether you want to borrow more money, decrease your monthly payments or roll in unsecured debts. 

Fees: Most remortgages offer things like free valuations, cash back or free legals – but some don’t. There may well be a solicitor bill to pay or a cost to have your property valued. All the costs need factoring in when deciding whether it’s right to remortgage or not.

What remortgage options are available?

We will look at the products available in the market. You could remortgage onto a fixed rate or a tracker rate. Fixed rates typically are available for two, three, five, seven and ten years, with lenders frequently dropping in and out for each of those terms. 

We’ll help you navigate the marketplace and help you decide on whether to move from Lender A to Lender B – and consider what’s on offer to retain you as a client.