Remortgage is a process of taking out a new mortgage with a new lender while staying in the same property. More often than not, people switch to a remortgage after the expiry of a fixed-rate deal to get a better interest rate deal.
When you take out a mortgage, you choose a fixed interest rate policy for a particular time, for instance, two, three or five years, and then your lender will put you on a standard variable rate. These rates can be higher, and other lenders are likely to offer it at affordable interest rates.
In addition to better interest rates, the following are the situations when you may want a remortgage.
Equity has gone up
You may think that you do not need equity as long as you are not moving to a new house. It plays a crucial role even if you have to remortgage. You will likely need more money to renovate your home or buy a new car.
If the value of your house has gone up, you can use the equity to borrow more money against your property. Of course, you will have to pay for various fees. You will still be better off than before because of a lower loan-to-value.
- You will have to be sure whether you have built equity. A mortgage lender will charge fees for valuation.
- Make sure that you can afford to pay it back because your mortgage will go up.
The Current deal is going to expire
The best time to take out a remortgage is when your current deal of fixed interest rate has come to an end, and you have been put on the standard variable rate. Since it can be higher, it is advisable to compare interest rates to choose the best deal.
- Make sure that your early repayment charge is not very high. The deal is no longer favourable if you end up paying an excessive amount of money to close the deal with your current mortgage lender.
- If the size of the mortgage is not big enough, it is not worth switching to a new lender despite the availability of low-interest rate deals.
You cannot borrow more money from a current lender
Your current lender will likely deny lending more money or terms of a new deal may not be ideal. Remortgaging with a new lender will enable you to raise higher money.
However, make sure that you will get a new mortgage deal at better interest rates, and you will not end up paying high early repayment charge.
- You will have to inform the lender why you need money.
- A lender will go through your credit file and financial circumstances again. You will have to go through the same procedure you followed at the time of taking out a first-time mortgage.
A hard credit check can impair your credit rating. Make sure that your financial condition is strong enough to prove your repayment capacity. Use an online calculator to see how much you will end up paying it.
Base rates are likely to go up
As long as you are on a fixed interest rate deal, you will know beforehand how much you are going to pay every month. Once this period expires, you will not see the instalment amount in advance. A standard variable rate fluctuates as the base rate does. If you get intimation that the Bank of England is about to increase base rates, you should remortgage.
Other factors to bear in mind before remortgaging
Of course, you need to have a good credit standing and stable financial condition for remortgaging. It is not a wise choice if:
- You are already on a great deal. Research the market and compare interest rates before cinching a deal.
- You have a poor credit rating. Your application is highly likely to be turned down.
- You have negative equity. It is a situation when you have higher debt than the value of the property.
Remortgaging is no picnic. Go ahead as long as you have reasonable grounds to switch to a new mortgage. If you have any doubt or a query, you should consult a broker or a financial advisor. Some of them provide a free consultation.