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The MortgageLab

What is remortgaging?

Remortgaging is moving your mortgage from one lender to another without moving home. Most people remortgage to replace their existing mortgage or to borrow money against their property. Around a third of all home loans made in the UK are remortgages as it’s an easy way to access more money, or to save money by moving to a new mortgage at a low rate of interest.

Why re-mortgage?

For most of us, our mortgage is our biggest financial commitment. So it follows that we should always try to reduce the amount we pay each month. Most of us get a fixed rate deal and stick with it, but shopping around for a different mortgage deal could mean significant savings. The main reasons you might want to remortgage are:

Your current deal is about to end
Fixed rate, tracker or discount mortgages with low interest rates generally only last for between two and five years. When the deal comes to an end, your lender will automatically switch you on to their standard variable rate (SVR), which could be a lot more than what you’ve been paying. If this is the case, you need to be ready to remortgage at a much better rate. There may be early repayment charges to consider if you switch to another product, but even taking these into account, the savings in the long term could be significant. However, if you only have a small outstanding mortgage, the amount you stand to save might be too low to make remortgaging worthwhile.

Your circumstances have changed
Things could have changed since you took out your original mortgage. Your home’s value may have increased, meaning you are in a lower loan-to-value band and so could get a much better interest rate. Or maybe you’ve changed jobs and are earning more money, so could afford to pay more on your mortgage. If your current arrangement won’t let you make overpayments, a remortgage will help you reduce the loan size and get a cheaper rate. But, in both cases, there will be exit charges or early repayment fees to consider. You might also want to remortgage so you have greater flexibility – the opportunity to overpay, take payment holidays or to change to an offset mortgage. Your First Mortgage advisor can look at the features of each mortgage package and advise on which will work out best for you.

You want to free up some money
One of the most common reasons for remortgaging is to release money for home improvements or to consolidate debts. Remortgaging to a new lender might enable you to raise money cheaply on low rates. The lender will ask you for proof of what you are spending the money on, such as evidence that debts have been paid off, or quotes from a build or architect for a home improvement project.

Getting Started

Need to release some money, or get a better rate on your mortgage? Remortgaging is definitely worth investigating. It’s not as complicated as buying a house, and you could save yourself money. What’s more, your First Mortgage advisor will do all the legwork for you, finding the best option for remortgaging and advising on whether you should stick with what you have – or go for something new.

When not to remortgage

Your First Mortgage advisor will be best placed to look at your circumstances and advise on whether to remortgage or not, but here are a few pointers of when it might not be best to remortgage:

When you don’t have much left to pay on your mortgage
When the amount you want to borrow falls below a certain amount it may not be worth switching lender as you are less likely to make a saving. In these circumstances, the exit fees or early repayment charges might outweigh the savings made with a better interest rate. Some lenders won’t take on a mortgage of less than £25,000.

The repayment charge is high
If the cost of early repayment is high then it’s probably better to stay with your current lender. However, it is worth asking if you could move to another deal with them at a better rate. There may still be a charge but it would be less than the likely exit fee.

Your financial picture has changed
Your financial circumstances may have changed since you took out your original mortgage. For instance, you may have stopped working, changed jobs or become self-employed. Lender’s criteria are strict and another lender may not be willing to take the risk. Similarly, your credit score could have changed in the interim after something as simple as a missed payment, narrowing your borrowing options.

Your home’s value has dropped
If your home’s value has dropped, then even if you have paid off some of your mortgage, you could still owe a greater proportion of your mortgage. You could even be in a negative equity situation, where you owe more than the value of your property. If you need to borrow more than 90% of the value of your property then you may find it difficult to find a better rate.

Whatever your circumstances, talk them through with a First Mortgage advisor and they can help you make the right move.

Advisor insights

Karen, FM advisor, Corstorphine

When you come to us for help and advice, you start off a relationship that will last as long as you need us. We’ll keep an eye on any fixed rate mortgage deals and get in touch with you a few weeks before they run out so we can start looking at the best package for you and your circumstances. That way you won’t have to worry about paying more on a standard variable rate and will always be one step ahead of the lenders”