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.