When it comes to mortgages, there can be a lot of financial mumbo jumbo and jargon words thrown around that we don’t necessarily understand to the fullest degree.
Remortgaging is one of those terms. If you already have a mortgage, you’ve probably heard a little bit about remortgaging. So in this article we’re going to explain exactly what remortgaging means and help you make an informed decision about whether a remortgage is right for you.
So, what is a ‘remortgage’?
Remortgaging is when you take out a new mortgage on a property that you own and already have a mortgage for.
It is NOT the same thing as taking out a second mortgage. When you remortgage, you switch your current mortgage to a new deal. You pay your old mortgage off with the proceeds of your new mortgage and use your property as security.
You can do this with your existing lender or you can transfer to another one.
Basically – it’s the process of shopping around for a better deal.
Each person will have their own unique reasons for choosing to remortgage, but from our experience, they usually fall into one of these four categories.
- Fixed rate comes to an end. The typical time offered for a fixed rate mortgage is around two years. When this comes to an end, your bank or lender will put you on their normal variable rate (SVR) – which is usually higher. If this is the case then you should consider remortgaging for a better deal.
- To decrease your monthly repayments. You may want to look for deals that let you reduce the amount you pay each month, although this will often be done by extending the term of your mortgage.
- To shorten your mortgage term. On the flip side, you may want to decrease your mortgage term so you can be mortgage-free faster.
- To borrow more money. If your home has risen in value, you may want to release the equity that has built up to spend on other things – such as university fees for your children or home improvements. Some people also choose to use this money to cover other debts; as mortgage interest rates tend to be cheaper than credit cards, for example.
When you shouldn’t remortgage
From our experience, we recommend that everyone should consider remortgaging as an option – as it could potentially save you a lot of money.
But, in certain circumstances, it will be more difficult for you to remortgage. This can happen if:
- Bad credit history. If you have negatively impacted your credit score since you took out your initial mortgage, you may find it difficult to get accepted by lenders.
- You don’t have much left to pay off. Some lenders will not offer a deal on anything less than £25,000.
- Early repayment charge. If it will be very expensive for you to get out of your existing deal (if your early repayment charge is high), it may not be worth remortgaging.
- Your property value has decreased. If the value of your home has dropped or if you’re in negative equity (where your debt is greater than the value of your home).
- You want to borrow a large amount. If you are trying to borrow over 90% of your home’s value, you might find it difficult.
Tips for remortgaging
- Start thinking about it as early as possible. We recommend around three months before your fixed rate ends.
- You don’t have to stick with your current lender. If you know there are better deals out there than what your existing lender is offering, you can shop around.
- Look at the bigger picture. If your reason for remortgaging is to lessen your monthly repayments, this may be beneficial in the short term but consider the long run – will it take longer for you to pay off your mortgage?
- Do your research. Use our compare mortgages calculator to get an idea of the deals that are available to see if they suit your circumstances.
- Talk to a professional. If you’re ready to take the step towards remortgaging, it pays off to seek advice from a professional mortgage advisor who has vast experience and understands the market to ensure you get the best possible deal.
If you want to remortgage, talk to PropertyPal Mortgages. We’re a mortgage broker with a difference – we offer impartial advice, we do all the paperwork for you, there are no fees and we’re open 24/7.
Last modified: 21/10/2021