Remortgaging is the process of moving your mortgage from one lender to another. Similar to a remortgage is a product transfer or rate switch, but this involves staying with the same lender. When required, remortgaging is, more often than not, the most appropriate option. While it is a longer process, it allows homeowners to move to the cheapest, most appropriate option across the mortgage market, rather than being limited to the options offered by a single provider.
Remortgaging is part and parcel of owning your own home, until you’ve paid off your mortgage. With fixed rate mortgage products, remortgages are required when your current product expires, typically every two or five years. Without remortgaging, you would fall onto the lender’s standard variable rate (SVR). SVR is almost always a higher interest rate and will therefore mean your monthly payments increase. Remortgaging allows you to secure a new mortgage product which prevents falling onto SVR. Remortgaging also provides an opportunity to review your mortgage in line with your current financial circumstances.
When you remortgage, you have the opportunity to adjust your mortgage balance and your mortgage term, as well as selecting a new mortgage product. If you have surplus cash, you can reduce your mortgage. If you’re looking to borrow more money, you can increase your mortgage. The latter is called capital raising and can be done for all sorts of reasons. Common examples include, consolidating debts, making home improvements such as a new kitchen or bathroom and purchasing another property – often to rent out. Adjusting monthly payments is the easier way to suit your monthly budget. Reducing the term increases the monthly payments but means your mortgage will be paid off faster. Increasing the term reduces the monthly payments, helping ease monthly cash flow when necessary. Your mortgage should work around your life; you shouldn’t live around your mortgage.
Most mortgage lenders produce mortgage offers which are valid for six months. Because of this, it is recommended to start your remortgage at least six months before your current deal expires. This is particularly beneficial in the current climate where interest rates are rising. As each week goes by, lenders across the mortgage market are increasing mortgage rates and more Bank of England Base Rate rises are likely for later this year. Sorting your mortgage as early as possible will more than likely allow you to secure a lower interest rate than if you leave it last minute.
While a product transfer may seem tempting, falling into the trap of sticking with your current mortgage provider for short-term ease can have a long-term cost… The average price of a mortgaged property in England rose above £300,000 for the first time in December 2021, coming out at £302,528 according to the UK House Price Index (https://www.gov.uk/government/news/uk-house-price-index-for-december-2021). Based on a £200,000 capital repayment mortgage, a 5-year fixed rate over a 25-year mortgage term, the difference between a 1.5% interest rate compared to a 2% interest rate would be almost £5,000 in pure interest.
If the rates and products offered by your current mortgage provider are not as competitive as those offered by other lenders, it’s worth remortgaging. As qualified mortgage advisors, we can look across the mortgage market to find the cheapest, most appropriate lender for your circumstances. If your current mortgage is coming up for renewal, don’t put off getting your new mortgage sorted. Get in touch now for free, professional advice.