A simples guide

Should I re-mortgage?

Remortgaging involves taking out a new mortgage deal on your home to replace the existing one. You may want to do this because you can save money by doing so, or because you want to borrow more money against your home, say to fund home improvements.

Essentially, the new mortgage you obtain by remortgaging is used to pay off your previous mortgage in full.

You firstly need to ask the question ‘Can I remortgage?’, and if the answer is yes, you then need to consider whether it is the right option for you.

Why remortgaging might be right for you

For most people, their mortgage is their biggest financial commitment, so why wouldn’t you try and save money on your repayments if you can?

Re-mortgaging may be an appropriate option because you could save money on your monthly repayments by switching to a cheaper deal. Many people choose to remortgage when a fixed, discounted or capped rate deal ends, and when their mortgage would otherwise revert to the standard variable rate.

For example, if you have a 25 year mortgage with £150,000 outstanding and you have been on a 3% fixed rate for the last five years, the remaining 20 years will revert to the lenders standard variable rate of 5% which will increase your monthly mortgage payments Rather than move to this new rate and pay the higher monthly repayments, you could find another lender offering a 3% fixed rate, and so you decide to borrow £150,000 with that lender. The amount borrowed is used to pay off your previous mortgage in full. You then start making repayments on your new mortgage, initially at your new fixed rate. You could set the term of your new mortgage to 20 years to match the remaining term on the previous mortgage or you could reduce or extend the term to suit your circumstances at that time.

If you want to remortgage to make home improvements, then the situation would be slightly different. You have a mortgage with £150,000 outstanding but now wish to borrow £20,000 for home improvements. You manage to find a lender willing to lend you £170,000, of which £150,000 is used to pay off your mortgage in full and the remainder can be used for home improvements.

Bear in mind that when you remortgage you have all of the fees and paperwork that you would when you apply for a new mortgage so you need to factor these additional costs into your decision. You’ll also need to make sure you can afford your new mortgage repayments.

When shouldn't you remortgage

Remortgaging will not always be the right thing to do. For example, if you want to borrow additional funds, say to fund home improvements, then you need to be totally confident that you can afford the increased payments.

If you increase your mortgage amount to provide these additional funds, then you need to be aware that the additional borrowing will be secured against your property, so it’s even more important to meet the repayment schedule.

Other alternatives to remortgaging to raise additional funds include: a further advance, a second charge secured loan, building up the required amount by saving regularly, or you could take out a loan or use a credit card.

Remortgaging may well not be appropriate if you would incur early repayment charges for terminating your existing mortgage. These charges usually apply during a fixed, discounted or capped rate period, but they could last beyond the end of this period, especially on fixed rate mortgages. Before deciding to remortgage you need to be totally clear on whether you would incur early repayment charges, and if so, how much these would be. Talk to your mortgage provider to find out what the repayment charges will be. You may decide that the cost savings you would make by remortgaging make it worth paying the early repayment charges. Otherwise it may be best to wait until the early repayment charge period has ended before considering remortgaging to make sure you’re not out of pocket.

Remember that you may need to pay an exit fee when you finish any mortgage deal, and that if you remortgage there could also be an arrangement fee and other set-up costs associated with the new deal – so factor these in your calculations.

How to remortgage

If you have decided that remortgaging is best for you, then you need to shop around to find the best deal. Similar to when you applied for your first mortgage, you can choose from a range of fixed, discounted or capped rate mortgages. You then need to apply for the mortgage that you believe to be the most suitable for your circumstances.

You should also get your home re-valued, as the current value of your home will affect how much any new mortgage provider is prepared to lend you. The ratio of the mortgage amount to the value of your home (Loan to Value) could also affect the interest rate you are offered – for example if you only borrow 60% of the value of your home you could pay a much lower interest rate than someone borrowing 90% of the value.

So if you think remortgaging may be for you, why not have a look at our mortgage tables and see what’s on offer?

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