Should I remortgage?
Many homeowners remortgage their home at some point. It’s no longer the norm to stay in a mortgage deal for the full term, which is usually around 25 years.
But is remortgaging worth it?
That depends on your circumstances. There are a number of benefits you could gain from remortgaging. We’ll take a look at these in more detail below.
Reduce your monthly mortgage payments
By shopping around, you might find a mortgage deal that reduces the amount you pay each month.
Fix your monthly mortgage payments
If you’re currently on a variable rate mortgage but want more stable monthly mortgage payments, you may want to switch to a fixed interest rate mortgage.
Get a more competitive interest rate on your mortgage
Some mortgage deals offer a lower-interest introductory period. When that period comes to an end, it can often be worth switching your mortgage to a more favourable deal elsewhere.
Get more flexibility with your mortgage
Some mortgage types come with a bit more flexibility, and this may suit your current needs. An offset mortgage, for example, enables you to offset any savings interest against mortgage interest.
Remortgage for debt consolidation
With interest rates on mortgages usually being lower than those on credit cards and other loans, it may be worth consolidating other debts into your mortgage. This isn’t always a good idea, though, so it’s always worth speaking with a fee-free mortgage broker to discuss your options first.
Remortgage for home improvements
If you’re considering home improvements, remortgaging can help you access extra funds. By making improvements that add value to your home, this could also be a good investment in the long run.
Remortgage to release equity
If you need to free up some capital, remortgaging your home can release some equity to provide cash funds for other things, such as helping your children fund a deposit on a home of their own.
Adapt to a new financial situation
Whether you start earning more or find yourself strapped for cash, remortgaging your home allows you to find a mortgage deal better suited to your new needs.
Remortgage to buy another house
If you’re thinking of investing in a second home or a buy-to-let property, you could consider remortgaging to raise the money you need for a deposit on your new property.
Other things to bear in mind when switching your mortgage
Remortgaging your home, for any of the reasons mentioned above, could help you save money in the long run.
But there are also some things you’ll want to bear in mind before you take the plunge:
- You’ll be asked to provide the same documents and information you provided when you got your original mortgage (when switching to a new lender).
- Your new lender will want to carry out their own valuation of your home.
- There may be a penalty attached to your current mortgage, such as an Early Repayment Charge (ERC).
- It might prove difficult to remortgage if you have a bad credit history, although there are options available.
- It’s important to know how much you have left to pay off on your current mortgage, as it may not be worth the switch if there are any penalties or switching fees involved.
- If you experience financial difficulties, you may find it hard to remortgage with a new lender, as they'll need to test that your income is sufficient to cover your new mortgage payments.
- This means that if you’re struggling to make your repayments, negotiating a new deal with your current lender will often be your best option.
- Always remember your home can be repossessed if you don't keep up repayments on your mortgage.
- Any savings will vary depending on personal circumstances.
How is loan-to-value (LTV) calculated for a remortgage?
When you remortgage your property, your lender will typically carry out a valuation on your home, and look at your LTV. This is simply the ratio between the value of the loan and the value of the property as a whole, expressed as a percentage.
For example, if you had £200,000 left to pay on a home worth £250,000, your loan (£200,000) to value (£250,000) ratio would be 4:5, or 80% as a percentage.