The Pros and Cons of Remortgaging: What you Need to Consider
26 July 2018
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Are you the type of person who shops around for the best phone contract? Do you compare prices for gadgets to make sure you’re getting the best deal before you buy?
It makes sense to apply these skills to what’s likely to be your biggest financial commitment: your mortgage. If done correctly, you could potentially save thousands per year, but there are some definite negatives if you rush into it without considering all the angles.
We’re here to walk you through it.
What Are The Pros?:
• Potential for a lower interest rate: Comparing the market when remortgaging can give you access to exclusive deals and rates, either with your current lender or an entirely new one.
If you come to the end of a two-year fixed rate, an experienced broker can access the whole of the market – look at what your current lender’s offering and we’ll give you a suggested new cost (that will be lower).
• Stop your monthly rates from rocketing: Homeowners who don’t remortgage are automatically moved to the lender’s Standard Variable Rate (SVR), which is likely to have a higher interest rate than they would be able to get on a new deal. This can lead to monthly repayments leaping considerably.
• You want to switch to a different type: You may decide you want to switch to a tracker, fixed-rate or interest-only mortgage depending on what best suits your current needs. As we know, situations change all the time so one solution that suited you before may not be the one for you now.
This article by Which breaks down different mortgage types very nicely.
• Your home has risen in value: If your home has substantially gone up in value it opens up new possibilities when it comes to rates and lending criteria. If you remortgage now you could have access to better deals than you did before.
• Are you earning more?: You could have been on a lower wage when you initially took out your mortgage, or you could have received a promotion since then. Either way, this will likely affect the rate and amount you can borrow now.
What Do I Need to Watch Out For?:
• You could become a ‘mortgage prisoner’: Stricter lending rules today require the borrower to prove that they could afford repayments, even if interest rates increased by 3 or 4%. This means that many homeowners who took out their mortgages under previous, less strict rules don’t meet the current conditions for taking out a mortgage and could be stuck paying an elevated SVR on their current mortgage indefinitely.
• Your remaining loan is small (i.e. £50,000): If your outstanding balance is low, then the costs of switching to a new lender might eradicate any gains you make with a lower rate. It may be best to speak to your current lender and discuss a rate swap, as there are either no entry costs or they are very low.
• Watch out for early repayment fees: Make sure you check your current lender’s rules as they might have an early repayment fee clause that you agreed to. These can be hefty in some cases, so go through your agreement with a fine-tooth comb.
• Have your circumstances changed?: Are you earning less than you were when you took out your original mortgage? Have you had any run-ins with bad credit recently? These are both factors that could affect the type of remortgage rate you have access to.
Speaking to a Mortgage Broker
As always, we highly recommend getting an experienced mortgage broker on board who will help you navigate the market for the best deal. A professional who understands the market will know exactly which lender suits your individual needs.
Think about searching for the best phone contract – time consuming, right? Now imagine you’re doing the same for a remortgage deal. It’s far more complex and has a multitude of options. It makes sense to have someone to do the legwork for you who can come up with refined and clear results.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
Mortgage Matters Direct is a trading name of Arun Estate Agencies Ltd. Registered Office: St Leonard's House, North Street, Horsham, West Sussex RH12 1RJ. Registered in England No.2597969. VAT No: 450-9134-61. Appointed Representative of Home In One Financial Services Ltd., which is authorised and regulated by the Financial Conduct Authority. England.