So, is now the right time to remortgage?
If you’re feeling the pinch from overspending at Christmas, on a recent holiday or on a new car, it might be a good time to find out if you can reduce your monthly mortgage payments or free up some money to put towards other debts.
You can review your current mortgage with a broker such as Mortgage Matters Direct without having to pay an upfront fee. They’ll be able to advise you on whether a better, cheaper or more suitable mortgage deal is available. What’s more, their advice is completely free, so if nothing fits the bill, you can stick with your current mortgage without being out of pocket.
Before you do, here are some things you should bear in mind when you remortgage.
What is remortgaging?
Put simply, remortgaging is simply switching your current mortgage deal to another lender,
or selecting a new product with your existing mortgage provider (this is also known as a product transfer).
You can remortgage for a better interest rate, to reduce your monthly repayments or to reduce your mortgage term – or, if you’re lucky, all of the above. How? Well, with every monthly payment into your mortgage, you’re gradually reducing your loan-to-value – or LTV.
Your LTV is your mortgage loan amount vs. the value of your home. The lower your LTV, the better your mortgage deal will be. So, if your current mortgage balance is £100,000 – but your home is currently worth £300,000 – your LTV will be 33%, which is pretty good. If your LTV is below 50%, you’ll have access to a range of ‘VIP’ mortgage deals, each offering a lower interest or more favourable repayment plan. If you think this may apply to you, remortgaging might be in your best interest.
When can you remortgage?
At the end of your term: Usually mortgage terms are between 2 and 5 years (although the take-up of 5-year-plus deals are increasing) – and so, as you reach the end of this period, it’s a good idea to look at what other kind of deal you can apply for.
If neighbouring house prices have gone up: If you’re part-way through your mortgage term, it could still be worth your while to remortgage – even if you incur an early repayment charge (more on that later). A quick online search will tell you if neighbouring properties have appreciated significantly – if so, chances are yours will have too.
Mortgage deals are partially based around how much equity you have. So, if your property value has increased by £100,000, this (along with the mortgage balance that you’ve already paid off) will go towards your equity amount and reduce your LTV. As a rule of thumb, the more equity you have, the better your mortgage deal will be. Whether that’s a lower interest rate or smaller monthly payments, you could be considerably better off by switching your mortgage.
You want to free up some cash: Okay, so you’ve overspent on your credit cards – and the interest rate is in the high twenties – what’s the most economical way to clear your balance? Remortgaging may provide a solution.
Whether you’re looking to free up some cash for home improvements or to consolidate debt, remortgaging – even with an early repayment charge – can work out to be comparatively cheaper than applying for a loan.
It’s important to do your sums first however – bear in mind that your interest rate will be comparatively lower, perhaps around 5%, but the repayment term will also be longer. So, in terms of money paid out, a 5% interest rate will be comparable to a 10% rate – but your monthly repayments will still be lower, so this may be the right call for you.
What about early repayment charges?
Remortgaging can save you a significant sum of money, but you should bear in mind, there’s usually a fairly substantial early repayment charge for most mortgages.
However, even if your early repayment charge is high, if any of the reasons stated above applies to you, you may still be comparatively better off by moving mortgage lenders.