For those who’ve been committed to a mortgage for some time, the idea of remortgaging can be daunting. But many people can save money with remortgaging, either with the same or a different mortgage provider.
What does it mean?
Remortgaging is to remain at the same property but change your mortgage plan. There are certain things that you will want to check before you remortgage: Your credit score, the cost of leaving your current mortgage, what you want from remortgaging and what deals are available. You need to consider all of the costs and benefits of a potential move.
Many lenders will allow you to complete what is known as an Agreement In Principle. It is a provisional agreement based on your circumstances that you may be able to remortgage. This can give you a good idea of what deals you can achieve based on your current situation. It may also help you to know what you must do to get a better deal.
There are several reason you may want to remortgage:
- Your mortgage is coming to an end and you wish to stay on a better rate.
- You currently have a high interest rate and want it lowered.
- To release equity from the property for things like home improvements.
- If your property value has increased and you want a better interest rate.
- If you want a provider that’ll let you overpay more than your current one.
Reasons that you may NOT want to remortgage:
- You may get stuck in a situation of being in negative equity if your house price has dropped since it’s initial mortgage valuation.
- You’re looking to consolidate other debt or owed money you have with your mortgage. Remember how much you’ll eventually end up paying with interest on a mortgage. A standard loan will usually work out far better.
- If you already have a pretty good value mortgage and you’re looking squeeze out a few more pennies. Chances are with the associated fees of remortgaging and the chance of variable rates coupled with the unknown, you may be looking too hard for a better deal.
- You’re expecting a large early repayment cost. This can may paying within the requisite period worthless as these fees can exceed any benefit from switching.
Types of mortgage available
Whilst you’re obviously looking to make savings by remortgaging, it’s important to still be aware of the different mortgage types that there are, how they vary, and how that may affect your decision:
- Discount-variable mortgage – This is where a discount is applied to a mortgage which has a variable rate. As the rate fluctuates, so too does the discount amount. It’s more common to have an introductory reduced rate and then for it later to increase. It’s also possible that the rate won’t increase over the term of the mortgage.
- Fixed-rate mortgage – Where, as the name suggests, the rate of repayment is constant. The length of the term will generally affect what the rate is, with longer repayment periods having higher rates.
- Tracker mortgages – This mortgage actually takes it’s basis from the Bank of England base rate. The rate is set as a percentage above this base rate. In this sense, it’s almost the opposite of the discount-variable mortgage as that takes no bearing from the Bank of England.
a) You took out a £200,000 mortgage over a 25 year term, paying £15,000 as a deposit. You’ve had the mortgage for 5 years at a fixed-interest rate of 2.99%. This means until this point you have been paying £876 monthly.
Now, your fixed-term rate ends and you’ll be put on a variable rate which will average at 5.5%. This will bring your average annual repayments to over £1,000, even if the term of repayment doesn’t. At this point, you may want to remortgage to get a lower rate, similar to that you had originally if the rise in costs becomes unmanageable for you.
b) You have a £230,000 mortgage on a 30-year rate and paid £22,000 for a deposit. You’ve had a discount variable mortgage which began at 1.24% for the first 2 years and then 4.14% for the next 3 years. Given this, you will have paid £692 a month initially for a total of £16,608, and then £964 monthly to a further total of £34,704. At this point your rate is set to increase again to 5.25%.
If you can secure a fixed-term rate of anywhere below this sum, that also does not increase to as great a figure then you will likely save money. If the fixed-rate is 2.5% for example over the same remaining 25 year term, this will bring your monthly payments back down to £710.
c) You’ve taken out a £185,000 mortgage at a 20-year rate with a £20,000 deposit. It’s a tracker mortgage so you’ve had a variable rate to repay. However, the average rate has been 1.2% for the first 5 years, 0.3% base rate plus an added 0.9% by the mortgage lender. At this price you have been repaying approximately £774 a week.
The lowest fixed-rate mortgage you are able to find is 2.15%. Provided the base rates stay roughly within the same parameters and there are no projected increases by the lender, the tracker mortgage would be better for you. In short, remortgaging would not be the best financial move.
Conclusion: No remortgage.
Remortgaging is a complicated business. It’s definitely something you should look into if you feel that it can save you money. That said, it’s not something you should take on lightly, and you should always seek second opinions to make sure your figures make sense. There are good reasons and bad reasons to remortgage. You’ll want to make sure you do it for the right reasons, and to make sure that it fits your circumstances. Repay early if you come into extra money or look for a better deal if that’s an option too. There are plenty of options out there, and plenty of lenders that can help you achieve your goals.