Why Should I Remortgage?
A remortgage is a great financial commitment for many individuals. But whether you should do it or not depends on your circumstances. Getting a remortgage has both its pros and cons.
It could be a great step to save money, although if not done in the right conditions it could cost you more than you would expect.
Here we will talk about the reasons why you should remortgage and also when to avoid remortgaging in case you’ve ever wondered, “Should I remortgage?”
When you should remortgage?
You want a better interest rate.
Being tied into an initial deal means that you sometimes have to pay early charges that can cost a lot of money. Some can even go up to 5% of your entire mortgage cost.
In addition, these charges also come with an exit fee or what lenders usually call a “deeds release fee”.
This does not necessarily mean that you should not consider it. Because the savings it has behind it can be massive. The only thing you need to do before taking action is make the proper calculations.
Your existing mortgage deal is about to end.
The better a mortgage is the shorter they usually last. Good mortgages often last for 2 to 5 years. This type of mortgage includes a fixed-rate, discount, or tracker mortgage.
When your existing mortgage deal is coming to an end, your lender will place you on an SVR (Standard Variable Rate). The SVR is a rate that is higher than the best buys that are available and also higher than your previous interest rate.
This is the why you should remortgage at this point in order to get a better rate. The time you should start looking for a remortgage is about 14 weeks before your current rate ends.
You are concerned that interest rates will rise.
Before you make a panicked decision, you need to understand what it means when rates go up. For example, if it is predicted that the Bank of England base rate will go up, it will most likely affect your mortgage payments.
The amount the interest rates rise for you depends on the type of mortgage you have taken out.
When you want to overpay but the lender won’t come to an agreement.
It is always a good idea to overpay when possible. But not all lenders will allow you to take that kind of action. Some lenders only allow you to make a limited overpayment.
The reason why you should remortgage in these types of situations is because it will decrease the size of your mortgage and also give you the chance to find a cheaper interest rate.
Although, always be on the lookout for the cost of repayment charges and exit fees. Compare these costs with the cheaper mortgage you have chosen and calculate how much you could save.
Your property’s value has risen drastically.
If the value of the house you have taken a mortgage for has risen drastically, you might be eligible to get a much lower rate.
This is because you are considered to be in a lower loan to value band. But always consider doing the proper research before taking the remortgage.
You wish to borrow more.
In some cases, you might find it very important to borrow more from your lender. But if you have taken the maximum mortgage loan, the chances your lender will give you the additional money is surprisingly low.
In this case, the reason why you should remortgage is because another lender might be able to give you the money you need.
Take into consideration all the existing fees that you will need to pay for your mortgage and make sure that you will get a profit out of it.
The new lender is most likely to ask why you need the extra money. It is easier to borrow money if you need it to renovate your home or buy a car rather than for business purposes.
Your new lender might not want to lend you more money when it comes to business.
When remortgaging with a new lender, you need to be prepared to provide the requested evidence of how you will spend your money, for example, proof that you have paid a previous depth with borrowed money, proof that you have made home improvements, etc.
You want to shift to a repayment mortgage rather than interest only.
It is not necessary for you to remortgage in order to do this. Most lenders are comfortable with making this kind of change for you.
You can also put a part of your mortgage to capital repayment and the rest on your interest-only deal. This tactic comes in handy if you have an endowment mortgage that is underperforming.
However, changing from a capital repayment to an interest-only deal will be more difficult. Some lenders do not agree to make these kinds of changes.
When shouldn’t I remortgage?
Your repayment charge is expensive.
When payment charges are higher than usual, it would be a bad idea to change before the initiative period ends.
If you have it hard to get out of your current deal then it is essential for you to make the proper calculations in order to free yourself as soon as possible.
Taking a mortgage in these situations can leave you with a bigger loss than you might expect.
When you have taken a small mortgage debt
The moment your loan files to a certain amount, for example, £40,000, it is not worth finding a new lender. This is because you are very unlikely to create a saving deposit when having high fees to pay.
In most cases, some lenders don’t even consider to take mortgages that are below £25,000. If you are interested in remortgaging it is a good idea to still take a look. But only deals that have a small fee or no fee at all will best suit you in this situation.
You need to understand that the smaller your mortgage is, the higher the fees will negatively impact you. In fact, it is better to remain with a higher interest-rate than taking a mortgage in such circumstances.
It is always worth it to ask your lender if you can make a switch on existing deals. The possibility for you to move on top of the range deals is relatively low, but moving to a better one means that you are no longer locked on your current deal.
The value of your property has dropped.
At the beginning of your home purchase, you might have had a 10% deposit. This might have led to you get an exceptional mortgage by borrowing the rest of the 90%.
But if the price of your home has dropped, that means that the amount you need to pay is larger.
In case this happens it means you are a victim of what is called evaporating equity. This leads you to paying more than the primary value of the property you purchased in the first place.
The right thing to do in these situations is to not get a remortgage and make overpayments whenever you get the chance to.
If your job status changes through time and so does your income, new lenders might not be fond of offering you any sort of loan.
This is because you do not fit their criteria due to your income changing. It means that you are better off staying with your current lender.
You have credit problems.
Lenders are very selective when it comes to who they want to lend money to. Even the Financial Conduct Authority insists lenders to check your credit history and choose which mortgage you can handle.
This has led to lenders asking for an astounding amount of details regarding your repayment history, outgoings, and paid debts as well.
It only takes one missed payment on your mortgage, credit card, or even your mobile phone to cause you problems. This will have an impact when considering why should I remortgage.
You have a great rate.
If you have a great deal then getting a remortgage has no point. But keep in mind that you are not always going to stay on top, with time you might need to consider remortgaging in order to save money.
Even if you have a great rate now it is recommended to do regular checks so you’re educated on catching the best deals possible.
You do not have enough equity.
If you borrow more than 90% of the value of your home, you will find it difficult to get a better rate.
Even if you consider taking out a remortgage, never forget to ask your current lender if they charge any amount for you to leave. This has been why should I remortgage!
Can I remortgage with bad credit?
You can remortgage with bad credit, although you may not get as good of a deal as you would if you were applying with a higher credit score.
Your lender may charge a higher interest rate so consider taking a few months to raise your score before you apply.
How much does remortgaging cost?
The cost of remortgaging includes legal fees of around $1,000 to set up your new deal. If you have a high mortgage balance still, your new lender may help you cover the fees.
How do you remortgage?
To remortgage, you switch from one mortgage lender to another. You would need to apply to remortgage with the new lender and be approved.
Remortgaging is only worth it when you can get a better interest rate than what you already have.
Why should I remortgage?
You should remortgage if you are unhappy with your current mortgage terms or interest rate. Remortgaging can potentially get you a cheaper rate and save you money in the long run.