Remortgaging is when you choose a different mortgage and switch to it – it doesnt have to mean that you move house or change lender. As mortgage payments are the biggest cost that most homeowners face, you need to review your mortgage regularly to make sure you have the best deal. With interest rates starting to come down, now is the perfect time to think about remortgaging.
We give you eight reasons why it makes sense to switch.
Because you are coming to the end of a discounted, capped or fixed-rate deal
When your fixed rate or discount period comes to an end, most lenders automatically transfer you to their standard variable rate (SVR). You need to remortgage just as your deal comes to an end but before you go on to the SVR. It may be simpler and cheaper to switch to another mortgage with your existing lender so ask what deals theyve got. Make sure you do this in advance because even paying one month at the SVR could cost you a few hundred pounds.
Because you are paying the lenders SVR
If you are paying your lenders standard variable rate (SVR), you should switch immediately as there is no reason for you to be paying so much for your mortgage. Anyone currently on their lenders SVR will be overpaying so remortgage now. If you just move from a rate of 6% to a rate of 5% you will save around £100 a month on a £150,000 mortgage over 25 years.
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To move to a different type of mortgage
Sometimes we need a bit of flexibility. If, for example, you want to take a short break from work to go on maternity leave, get made redundant or become self-employed its helpful if you can reduce your mortgage payments to help you get through difficult times.
Most mortgages offer a degree of flexibility, but if you know you are going to want to take a payment holiday, then it may be worth considering moving to a mortgage where this is possible.
Make sure you arent paying over the odds in interest in exchange for increased flexibility
Similarly it may make sense for you to consider a current account or offset mortgage where your savings or day-to-day cash link to your mortgage, reducing the amount of money you have to pay interest on. These accounts can be useful for the self-employed who often put aside large amounts of money to pay tax at the end of the year.
If you need to borrow money these accounts often let you do this at the same rate of interest as you will pay on the mortgage. But interest rates may be higher than the current best buys, so make sure you will use the facilities to make the switch worthwhile.
To release money
If youve owned your home for a while, the chances are youve built up some equity. Remortgaging could allow you to release this equity to pay for home improvements, fund a holiday or wedding, pay for school or university fees or consolidate debts.
This will mean taking out a larger mortgage, but if you are currently paying a high rate of interest you may end up with the same level of repayments by remortgaging.
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To shorten the term of your mortgage
If youve had a salary increase since you took out your mortgage you may feel you could pay a bit more each month to reduce the term of your mortgage. There are two ways of doing this. Either take out a mortgage that allows you to overpay by a certain amount each year, or take out a mortgage over a shorter term and increase your monthly repayments.
If you switch to a cheaper fixed rate, you may find your repayments stay the same even if you shorten the term.
To make sure your payments stay the same
If you are going through a period where your finances are stretched and you need to budget each month, then a fixed rate mortgage could be the answer. If you opt for a fixed rate your payments will be the same for the term of the deal. Fixed rates are usually available for two, three, five and even ten years. Look out for redemption penalties when switching to a new rate. If you dont want to be tied into your mortgage for longer than the fixed rate period, make sure you choose a mortgage that doesnt have extended tie-ins.
Convenience
Some people prefer to have their finances with one company, or some prefer to have their finances with a branch that is close to where they live. While it can make your life easier to have all your financial arrangements in one place, remember that its unlikely you will be getting the best deal for all your products. Make sure that cost doesnt outweigh convenience and remember that most lenders now allow telephone and internet access, so it shouldnt be necessary to visit a branch.
All you need to do now is work out how much money you can save by remortgaging. Just go to our mortgage calculator and play with how much you would want to borrow and at what interest rate. You will be able to see what savings you can make on your mortgage.
Find a new mortgage deal
If youre not sure of the value of your house then check out the house price search on the home page. You may be able to reduce the loan to value (LTV) you need to borrow on your mortgage through remortgaging – and some lenders offer lower rates for a lower LTV.
Dont forget, if you have a redemption penalty attached to your existing mortgage you need to make sure that this wont outweigh any potential savings. Once youve subtracted the cost of the redemption penalty from the savings that you can potentially make and you can still make a saving, then its worth going ahead with a remortgage.
Find a mortgage adviser here
You can obviously check out best-buy mortgages on this website but if you are still unsure then visit a financial adviser. After all they may be able to get you an even better deal!
