Remortgaging your home is a significant financial decision that can offer various benefits, from saving money on your mortgage payments to releasing equity for other purposes. But how do you know if it's the right move for you? Here we'll explore the key factors to consider when deciding whether to remortgage and the potential advantages and disadvantages.
What is remortgaging?
Remortgaging involves switching your existing mortgage to a new one on a property you already own. This can be done for various reasons, such as securing a better interest rate, changing the mortgage term, or accessing equity in your home.
Key reasons to remortgage
End of fixed term: When your fixed-rate period ends (typically after 2 or 5 years), you may revert to your lender’s standard variable rate, which is often higher. Remortgaging before this happens can secure you a better deal, so start looking about 6 months before your current rate ends.
Home value increase: If your property has significantly increased in value, you might be eligible for a lower loan-to-value ratio, resulting in lower interest rates.
Lower interest rates: If current interest rates are lower than when you initially took out your mortgage, remortgaging could reduce your monthly payments, but it’s important to do your research.
Fixing your rate: If you're on a variable rate mortgage and want more stability, switching to a fixed-rate mortgage can provide predictable payments.
Accessing equity: You can release equity from your home to fund home improvements, pay off debts, or finance other major expenses.
Improving your terms: If your financial situation has improved since you first took out your mortgage, you may qualify for more favourable terms and conditions.
Why shouldn’t you remortgage?
Small mortgage balance: The costs of remortgaging may outweigh the savings for a small remaining balance, and it may be more cost effective to do a product switch with your current provider instead.
Change in circumstances: Reduced income or increased financial commitments (such as childcare) can impact your eligibility for a new mortgage.
Home value decrease: A lower property value can result in a higher loan-to-value ratio, limiting your remortgage options.
You have very little equity: Limited equity can lead to higher interest rates and a limited range of deals available.
You already have a great rate: If your existing mortgage rate is already competitive, switching may not offer significant benefits. When your current deal comes to an end though, it’s worth shopping around to see what different lenders have to offer instead of sticking with the same lender.
Potential Drawbacks
Fees and costs: Remortgaging can involve costs such as early repayment charges, exit fees, and arrangement fees for the new mortgage which may negate any potential savings from remortgaging.
Resetting the clock: Taking out a new mortgage term can extend the period over which you’re paying interest, potentially costing you more in the long run.
Equity risks: Accessing equity reduces your ownership stake in the property, which could be risky if property values decline.
Deciding whether to remortgage depends on your individual circumstances and financial goals. It’s essential to weigh the potential benefits against the costs and consider seeking advice from a mortgage advisor.
At Your Mortgage Room, we can help you evaluate your options and find a solution tailored to your needs. Get in touch today or call us on 01273 039500 for a personalised consultation.
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