The Pros And Cons Of Remortgaging
Remortgaging may be an option if you want to get a better deal, release equity, or lower your repayments.
To protect themselves against future price hikes, more and more people are looking at fixing their mortgage rate as interest rates rise in the UK.
We explain the pros and cons of remortgaging your home, as well as the process and costs.
This guide contains the following information:
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Remortgaging - what is it?
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Remortgaging: how does it work?
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Remortgaging: potential benefits
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Remortgaging drawbacks
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What is the best decision for you when it comes to remortgaging?
Remortgaging: what is it?
Remortgaging is the process of changing your mortgage product on your property. Your current lender might be willing to remortgage with you, or you might be able to find a deal with another lender.
You can also release equity from your home by remortgaging at a higher loan to value (LTV) - which is your loan expressed as a percentage of the property's value. By doing this, you can increase your financial flexibility - for example, you can use the additional capital to renovate your home or help a family member purchase their first home.
As soon as your current mortgage term ends, your lender will automatically switch you to a standard variable rate (SVR). It is much more expensive to get a SVR mortgage deal than a variable or fixed rate mortgage deal. To avoid paying an SVR when your current mortgage term is up, we recommend at least reviewing your options and remortgaging.
Remortgaging: how does it work?
Finding a deal
The first step to remortgaging your property is to research the remortgaging deals currently available in the market. Make sure you get a good deal by talking to a specialist mortgage broker before making a decision. Their expertise in the mortgage market will enable them to find the best mortgage solution for you.
Here's how to apply
Most of the time, remortgaging is easier than applying for a new mortgage from scratch. To make the application process as smooth and fast as possible, you should have all your documentation ready. Personal ID, payslips, bank statements, and tax returns from the last few years can be included.
If your credit report contains any errors, you should update your details before you apply for a remortgage so that your new lender can check your credit score before offering you a remortgage.
Remortgaging fees
Your remortgage arrangement fees may include:
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Remortgage booking and arrangement fees
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Fees for drafting your remortgage account and administration
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Fees for legal and conveyancing services
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Fees for property valuations
Ensure that your current mortgage does not have any exit fees or early repayment charges (ERCs). If you have any questions, speak to a mortgage adviser. ERCs can be expensive, and the costs could outweigh the savings you would make by remortgaging.
A good mortgage broker can help you understand remortgaging in greater depth, while speeding up the process if your financial situation is complex.
The benefits of remortgaging
Better interest rates
With remortgaging, you can take advantage of low interest rates to secure a better deal than your current one.
Due to the COVID-19 pandemic, interest rates have been historically low. Due to this, remortgaging has become increasingly popular among homeowners and business owners alike.
There are many people who remortgage to take advantage of lower interest rates than their current mortgage deal. Remortgaging may be a good option if you anticipate an increase in interest rates in the near future.
Take out more loans
Your property may have appreciated in value if you've owned it for a long time, due to:
The value of your house may have increased, so you might be eligible for a lower interest rate if you remortgage and are in a lower loan-to-value (LTV) band. Due to the rising value of your property, your loan value will be smaller than the value of your property.
Release equity
There are a number of reasons why you might want to release equity from your home, including funding repairs, home improvements, an extension, or even purchasing another home.
You may be able to release equity at a cheaper rate if you switch lenders. Loyalty to your lender doesn't always get you the best deal. If you're looking to finance a development project, your new lender may ask you for evidence about why you're borrowing more money.
Consolidate debts
With a remortgage, you may be able to pay off your existing debts. In addition to being more convenient and cheaper, remortgaging can be a good way to consolidate debt. Nonetheless, a good mortgage advisor can provide expert guidance during this process.
Financial flexibility is important to you
You may not be satisfied with your current mortgage plan if you have a new family member, a new job, or a career break that requires 'payment holidays'. You recently received a pay raise and want to pay off more of your mortgage, but your current lender won't allow you to do so.
Your current mortgage may not be accommodating for your current lifestyle or provide you with the flexibility you need. You can make underpayments and overpayments depending on your income status with flexible remortgages.
Possible drawbacks of remortgaging
Slower than a short-term loan
Remortgaging typically takes four to eight weeks. During a bidding contest, you may not have the time to remortgage your house if you want to pay an immediate deposit for a new house.
It may be worthwhile to consider a bridging loan if you need immediate funds, such as for a deposit on a new property. It is often possible to get a short-term bridging loan within a week (with higher interest rates), which you usually repay within a year. Although bridging loans are higher than mortgages, they're lower than personal loans because they're secured against your property.
Fees and expenses
Prior to remortgaging, it's important to weigh the benefits against the costs. Arrangement fees and possible early repayment charges can quickly add up on top of monthly repayments. A stable income is also required to apply for, and maintain, a remortgage.
Your first mortgage might not be as affordable if you're now earning less than you did when you took it out. Alternatively, if you're now self-employed but don't yet have 2 years of tax returns, it could complicate the process even more.
Remortgaging: Is it right for you?
Consider any family, career, or lifestyle plans that might benefit from the capital you could gain from a remortgage as you decide whether or not to remortgage. You won't be able to use the equity you've built up in your home again once you've used it.
It is common to seek independent advice from a mortgage broker before remortgaging.