What is Remortgaging and When Should You Consider It?

Remortgaging can be a smart financial move, but it’s important to understand when and why you might consider it.

What is Remortgaging?

Remortgaging involves switching your current mortgage to a new deal with a different lender. Think of it like switching energy providers to get a better rate or service.

When Should You Remortgage?

The decision to remortgage is personal and depends on your circumstances. Many people choose to remortgage when their current deal is nearing its end to avoid being moved onto their lender’s Standard Variable Rate (SVR), which can be higher.

It’s a good idea to start looking into remortgaging two to six months before your current deal ends. This way, you can avoid being placed onto an SVR mortgage.

Reasons to Remortgage

1. Increased Property Value: If your home has appreciated significantly, you might qualify for a lower LTV mortgage product.

2. End of Current Deal: Remortgaging can help you avoid the higher rates of an SVR.

3. Change Mortgage Type: You might want to switch from a variable to a fixed rate, or vice versa, depending on your financial goals.

Reasons to Wait

There are also times when remortgaging might not be the best option:

1. Negative Equity: If you owe more on your mortgage than your home is worth, remortgaging might not be possible.

2. Early Repayment Charges: If you’re still within your current deal, the early repayment charges might outweigh the benefits of switching.
   

How to Prepare for Remortgaging

When you’re ready to remortgage, there are a few steps to take:

1. Determine Your Property’s Value: Knowing your home’s current value is crucial as it affects your LTV ratio, and the interest rates you can get. You can get an estimate online or by looking at recent sales of similar properties in your area. Keep in mind that your lender will conduct their own valuation.

2. Find Out Your Mortgage Balance: This is the amount you’ll need to borrow from the new lender. Request a redemption statement from your current lender to get this information.

Remortgaging Fees and Charges

Switching mortgage providers can come with various costs:

1. Product or Arrangement Fee: This fee covers the cost of setting up your new mortgage. It can be paid upfront or added to your loan but adding it to your loan will increase the overall cost due to interest.

2. Valuation Fee: This fee covers the cost of valuing your property. Some lenders offer free valuations as part of their remortgage products.

3. Legal Fees: You’ll need a legal adviser to handle the transfer of mortgage money and conduct necessary searches. Some lenders offer free legal services as part of their remortgage deals.

4. Early Repayment Charge (ERC): If you switch before your current deal ends, you might have to pay an ERC, which is usually a percentage of your outstanding mortgage balance.

5. Exit or Redemption Fee: Your current lender might charge this fee to cover the administrative costs of closing your mortgage account.

Remortgaging can offer significant financial benefits, such as lower interest rates and better mortgage terms, especially if your property’s value has increased or your current deal is ending. However, it’s essential to weigh the potential costs and consider your financial situation carefully. By understanding the process and preparing, you can make an informed decision that aligns with your financial goals.

Whether you’re looking to save money, switch mortgage types, or avoid higher rates, remortgaging could be a valuable option. Always consider the timing, potential fees, and your property’s current value to ensure you make the best choice for your circumstances.